Gartner Forecasts Massive Surge in Generative AI Spending Despite Challenges

Gartner to CIOs: Prepare to spend more money on generative AI

You know all that money your company may already be spending on generative AI products and projects? Well, be prepared to spend a lot more in the coming year. Also: How to use ChatGPT: A beginner's guide to the most popular AI chatbot As generative AI, or gen AI, becomes more integral to business operations and consumer products, spending is expected to rise dramatically. In its latest forecast, Gartner predicts that the amount of money spent around the world on this hot flavor of AI will total $644 billion this year, an increase of 76.4% from last year. One problem with gen AI, as it currently stands, is that the technology is still in its nascent stages and often flawed and fallible. This is typified by the tendency for AI to hallucinate or deliver inaccurate, incorrect, or misleading results. As a result, many CIOs and other tech executives have been disappointed with the high failure rates of AI. Also: 10 key reasons AI went mainstream overnight - and what happens next However, the promise of gen AI has led AI providers and other companies to continue investing billions of dollars in the technology. The goal is to enhance and improve the size, performance, and reliability of AI models to address current weaknesses. Due to the existing limitations of gen AI, internal projects will face greater scrutiny this year, according to John-David Lovelock, Distinguished VP Analyst at Gartner. And where will companies then focus their time, energy, and money? "Ambitious internal projects from 2024 will face scrutiny in 2025, as CIOs opt for commercial off-the-shelf solutions for more predictable implementation and business value," Lovelock said. "Despite model improvements, CIOs will reduce POC [proof of concept] and self-development efforts, focusing instead on gen AI features from existing software providers." Some 80% of the increased spending on gen AI will focus on integrating AI into existing hardware, such as servers, PCs, and smartphones. But company spending on AI software and services will also surge. Breaking down its forecast for 2025, Gartner anticipates that businesses will spend $27.7 billion on services, $37.1 billion on software, $180.6 billion on servers, and $398.3 billion on devices, all dramatic increases from last year. Looking ahead even further, Gartner expects that manufacturers will increasingly add AI skills to their devices, whether or not consumers necessarily want them. Also: Generative AI is finally finding its sweet spot, says Databricks chief AI scientist "The market's growth trajectory is heavily influenced by the increasing prevalence of AI-enabled devices, which are expected to comprise almost the entire consumer device market by 2028," Lovelock added. "However, consumers are not chasing these features. As manufacturers embed AI as a standard feature in consumer devices, consumers will be forced to purchase them." The still untapped promises of gen AI and its often seen pitfalls are typified by a feature like Apple Intelligence. Apple touted its iPhone 16 lineup based largely on the benefits of generative AI to transform the way you work, play, and communicate. In reality, the feature has failed to deliver on those promises, with some of its promoted skills either not working as expected or being delayed further and further. Also: Worried about DeepSeek? Turns out, Gemini collects more user data But if Gartner is correct in its forecast, we're on an AI ride that shows no signs of stopping. For now, vendors will continue to push gen AI into their products while customers wait for it to realize its potential. To further those goals, all sides will have to open their wallets in hopes that generative AI will become the game changer that it aspires to be. Get the morning's top stories in your inbox each day with our Tech Today newsletter.

Companies will spend almost $644 billion on generative AI, despite the tech's high failure rates

Editor's take: Judging from the discourse in my communication bubble, almost no one likes AI technologies. The most enthusiastic AI evangelists are vendors interested in selling you something AI-related to cash in on the craze or the companies creating it and shoving it down our throats. A recent Gartner analysis reports that spending on generative AI (GenAI) will grow to unprecedented levels in 2025, even though very few organizations understand how this technology can help their businesses or profit prospects. Experts believe this market "paradox" trend will persist through 2025 and 2026. Global spending on GenAI will reach around $644 billion in 2025, a 76.4-percent increase compared to 2024. This spending trend comes despite the technology's lack of actual usefulness and error rate. Gartner VP Analyst John-David Lovelock says foundational model providers are investing billions in developing and enhancing their solutions regardless of the growing concerns about the technology. This year, internal projects with lofty goals will face increased scrutiny, Lovelock stated. Chief investment officers will likely opt for commercial, off-the-shelf solutions, while proof-of-concept experimentations and self-developed implementations should become the exception. GenAI prospects haven't been as ambitious lately, but the technology should still significantly impact all IT spending this year. Experts expect AI technologies to become integral to all kinds of business operations and consumer products. This forced integration will be primarily due to AI capabilities baked directly into consumer hardware, with servers, smartphones, and PCs absorbing 80 percent of the projected GenAI spending. Lovelock notes that the growing prevalence of AI-enabled devices is driving market growth, with these consumer electronics expected to make up nearly the entire market by 2028. However, end consumers don't seem as enthusiastic about GenAI, as they're not actively seeking these "extra" features when shopping for new devices. Regardless, manufacturers continue embedding AI as a standard in mass-market products, ultimately forcing consumers to adopt it. Developers have adopted a service model that says, "You will consume our product, even if you don't want it." It sounds like a page out of Microsoft's playbook back in the day.

Gartner forecasts gen AI spending to hit $644B in 2025: What it means for enterprise IT leaders

Join our daily and weekly newsletters for the latest updates and exclusive content on industry-leading AI coverage. Learn More Make no mistake about it, there is a lot of money being spent on generative AI in 2025. Analyst firm Gartner released a new report today forecasting that global gen AI spending will hit $644 billion in 2025. That figure represents a 76.4% year-over-year increase over gen AI spending in 2024. Gartner's report joins a chorus of other industry analyses in recent months that all point to increasing adoption and spending for gen AI. Spending has been growing by 130%, according to research conducted by AI at Wharton, a research center at the Wharton School of the University of Pennsylvania. Deloitte reported that 74% of enterprises have already met or exceeded gen AI initiatives. While it's no surprise that spending on gen AI is growing, the Gartner report provides new clarity on where the money is going and where enterprises might get the most value. According to Gartner's analysis, hardware will claim a staggering 80% of all gen AI spending in 2025. The forecast shows: "The device market was the biggest surprise, it is the market most driven by the supply side rather than the demand side," John Lovelock, distinguished VP analyst at Gartner, told VentureBeat. "Consumers and enterprises are not seeking AI enabled devices, but manufacturers are producing them and selling them. By 2027, it will be almost impossible to buy a PC that is not AI enabled." Hardware's dominance will intensify, not diminish for enterprise AI With hardware claiming approximately 80% of gen AI spending in 2025, many might assume this ratio would gradually shift toward software and services as the market matures. Lovelock's insights suggest the opposite. "The ratios shift more in hardware's favor over time," Lovelock said. "While more and more software will have gen AI enabled features, there will be less attributable money spent on gen AI software -- gen AI will be embedded functionality delivered as part of the price of the software." This projection has profound implications for technology budgeting and infrastructure planning. Organizations expecting to shift spending from hardware to software over time may need to recalibrate their financial models to account for ongoing hardware requirements. Moreover, the embedded nature of future-gen AI functionality means that discrete AI projects may become less common. Instead, AI capabilities will increasingly arrive as features within existing software platforms, making intentional adoption strategies and governance frameworks even more critical. The PoC graveyard: Why internal enterprise AI projects fail Gartner's report highlights a sobering reality: many internal gen AI proof-of-concept (PoC) projects have failed to deliver expected results. This has created what Lovelock calls a "paradox" where expectations are declining despite massive investment. When asked to elaborate on these challenges, Lovelock identified three specific barriers that consistently derail gen AI initiatives. "Corporations with more experience with AI had higher success rates with gen AI, while enterprises with less experience suffered higher failure rates," Lovelock explained. "However, most enterprises failed for one or more of the top three reasons: Their data was of insufficient size or quality, their people were unable to use the new technology or change to use the new process or the new gen AI would not have a sufficient ROI." These insights reveal that gen AI's primary challenges aren't technical limitations but organizational readiness factors: The strategic pivot: From internal development to commercial solutions The Gartner forecast notes an expected shift from ambitious internal projects in 2025 and beyond. Instead, the expectation is that enterprises will opt for commercial off-the-shelf solutions that deliver more predictable implementation and business value. This transition reflects the growing recognition that building custom-gen AI solutions often presents more challenges than anticipated. Lovelock's comments about failure rates underscore why many organizations are pivoting to commercial options offering predictable implementation paths and clearer ROI. For technical leaders, this suggests prioritizing vendor solutions that embed gen AI capabilities into existing systems rather than building custom applications from scratch. As Lovelock noted, these capabilities will increasingly be delivered as part of standard software functionality rather than as separate gen AI products. What this means for enterprise AI strategy For enterprises looking to lead in AI adoption, Gartner's forecast challenges several common assumptions about the gen AI marketplace. The emphasis on hardware spending, supply-side drivers and embedded functionality suggests a more evolutionary approach may yield better results than revolutionary initiatives. Technical decision-makers should focus on integrating commercial gen AI capabilities into existing workflows rather than building custom solutions. This approach aligns with Lovelock's observation that CIOs are reducing self-development efforts in favor of features from existing software providers. For organizations planning more conservative adoption, the inevitability of AI-enabled devices presents challenges and opportunities. While these capabilities may arrive through regular refresh cycles regardless of strategic intent, organizations that prepare to leverage them effectively will gain competitive advantages. As gen AI spending accelerates toward $644 billion in 2025, success won't be determined by spending volume alone. Organizations that align their investments with organizational readiness, focus on overcoming the three key failure factors and develop strategies to leverage increasingly embedded gen AI capabilities will extract the most value from this rapidly evolving technology landscape.

Gartner Forecasts Worldwide GenAI Spending to Reach $644 Billion in 2025

CIOs Must Prepare for Rising GenAI Spending in 2025, Fueled by Better Foundational Models and Growing Demand for AI Products Worldwide generative AI (GenAI) spending is expected to total $644 billion in 2025, an increase of 76.4% from 2024, according to a forecast by Gartner, Inc. "Expectations for GenAI's capabilities are declining due to high failure rates in initial proof-of-concept (POC) work and dissatisfaction with current GenAI results," said John-David Lovelock, Distinguished VP Analyst at Gartner. "Despite this, foundational model providers are investing billions annually to enhance GenAI models' size, performance, and reliability. This paradox will persist through 2025 and 2026. "Ambitious internal projects from 2024 will face scrutiny in 2025, as CIOs opt for commercial off-the-shelf solutions for more predictable implementation and business value. Despite model improvements, CIOs will reduce POC and self-development efforts, focusing instead on GenAI features from existing software providers." said Lovelock. GenAI spending is poised for significant growth across all core markets and submarkets in 2025 (see Table 1). GenAI will have a transformative impact across all aspects of IT spending markets, suggesting a future where AI technologies become increasingly integral to business operations and consumer products. Table 1. Worldwide GenAI Spending Forecast (Millions of U.S. Dollars) 2024 Spending 2024 Growth (%) 2025 Spending 2025 Growth (%) Services 10,569 177.0 27,760 162.6 Software 19,164 255.1 37,157 93.9 Devices 199,595 845.5 398,323 99.5 Servers 135,636 154.7 180,620 33.1 Overall GenAI 364,964 336.7 643,860 76.4 Source: Gartner (March 2025) AI Capable Consumer Devices to Drive GenAI Spending GenAI spending in 2025 will be driven largely by the integration of AI capabilities into hardware, such as servers, smartphones and PCs, with 80% of GenAI spending going towards hardware. "The market's growth trajectory is heavily influenced by the increasing prevalence of AI-enabled devices, which are expected to comprise almost the entire consumer device market by 2028," said Lovelock. "However, consumers are not chasing these features. As the manufacturers embed AI as a standard feature in consumer devices, consumers will be forced to purchase them." Gartner's GenAI spending forecast methodology relies heavily on rigorous analysis of the sales by over a thousand vendors across the entire range of GenAI products and services. Gartner uses primary research techniques, complemented by secondary research sources, to build a comprehensive database of market size data on which to base its forecast. The Gartner GenAI spending forecast delivers a unique perspective on GenAI spending across the hardware, software and IT services segments. These reports help Gartner clients understand market opportunities and challenges. The most recent GenAI spending forecast research is available to Gartner clients in "Forecast Alert: GenAI IT Spending, 2023-2028, Worldwide." Additional leadership trends will be presented during Gartner IT Symposium/Xpo, the world's most important conference for CIOs and other IT executives. Gartner analysts and attendees will explore the technology, insights and trends shaping the future of IT and business, including AI, business transformation, cybersecurity, customer experience, data analytics, executive leadership and more. Follow news and updates from the conferences on X using #GartnerSYM, and on the Gartner Newsroom. Upcoming dates and locations for Gartner IT Symposium/Xpo include: September 8-10, 2025 | Gold Coast, Australia October 20-23, 2025 | Orlando, FL October 28-30, 2025 | Tokyo, Japan November 10-13, 2025 | Barcelona, Spain November 17-19, 2025 | Kochi, India About Gartner for High Tech Gartner for High Tech equips tech leaders and their teams with role-based best practices, industry insights and strategic views into emerging trends and market changes to achieve their mission-critical priorities and build the successful organizations of tomorrow. Additional information is available at www.gartner.com/en/industries/high-tech. Follow news and updates from Gartner for High Tech on X and LinkedIn using #GartnerHT. About Gartner Gartner, Inc. (NYSE: IT) delivers actionable, objective insight to executives and their teams. Our expert guidance and tools enable faster, smarter decisions and stronger performance on an organization's mission-critical priorities. To learn more, visit gartner.com.

Gartner Forecasts Worldwide GenAI Spending to Reach $644 Billion in 2025

CIOs Must Prepare for Rising GenAI Spending in 2025, Fueled by Better Foundational Models and Growing Demand for AI Products Worldwide generative AI (GenAI) spending is expected to total $644 billion in 2025, an increase of 76.4% from 2024, according to a forecast by Gartner, Inc. "Expectations for GenAI's capabilities are declining due to high failure rates in initial proof-of-concept (POC) work and dissatisfaction with current GenAI results," said John-David Lovelock, Distinguished VP Analyst at Gartner. "Despite this, foundational model providers are investing billions annually to enhance GenAI models' size, performance, and reliability. This paradox will persist through 2025 and 2026. "Ambitious internal projects from 2024 will face scrutiny in 2025, as CIOs opt for commercial off-the-shelf solutions for more predictable implementation and business value. Despite model improvements, CIOs will reduce POC and self-development efforts, focusing instead on GenAI features from existing software providers," said Lovelock. GenAI spending is poised for significant growth across all core markets and submarkets in 2025 (see Table 1). GenAI will have a transformative impact across all aspects of IT spending markets, suggesting a future where AI technologies become increasingly integral to business operations and consumer products. AI Capable Consumer Devices to Drive GenAI Spending GenAI spending in 2025 will be driven largely by the integration of AI capabilities into hardware, such as servers, smartphones and PCs, with 80% of GenAI spending going towards hardware. "The market's growth trajectory is heavily influenced by the increasing prevalence of AI-enabled devices, which are expected to comprise almost the entire consumer device market by 2028," said Lovelock. "However, consumers are not chasing these features. As the manufacturers embed AI as a standard feature in consumer devices, consumers will be forced to purchase them." Gartner's GenAI spending forecast methodology relies heavily on rigorous analysis of the sales by over a thousand vendors across the entire range of GenAI products and services. Gartner uses primary research techniques, complemented by secondary research sources, to build a comprehensive database of market size data on which to base its forecast. The Gartner GenAI spending forecast delivers a unique perspective on GenAI spending across the hardware, software and IT services segments. These reports help Gartner clients understand market opportunities and challenges. The most recent GenAI spending forecast research is available to Gartner clients in "Forecast Alert: GenAI IT Spending, 2023-2028, Worldwide." Additional leadership trends will be presented during Gartner IT Symposium/Xpo, the world's most important conference for CIOs and other IT executives. Gartner analysts and attendees will explore the technology, insights and trends shaping the future of IT and business, including AI, business transformation, cybersecurity, customer experience, data analytics, executive leadership and more. Follow news and updates from the conferences on X using #GartnerSYM, and on the Gartner Newsroom. Gartner for High Tech equips tech leaders and their teams with role-based best practices, industry insights and strategic views into emerging trends and market changes to achieve their mission-critical priorities and build the successful organizations of tomorrow. Additional information is available at www.gartner.com/en/industries/high-tech. Gartner, Inc. (NYSE: IT) delivers actionable, objective insight to executives and their teams. Our expert guidance and tools enable faster, smarter decisions and stronger performance on an organization's mission-critical priorities. To learn more, visit gartner.com.