Gartner Revises Global IT Spending Forecast Amid AI Surge

Gartner warns IT spending growth may not be as strong as expected -- and AI is to blame

Gen AI investment is affecting other areas of spending, Gartner says IT spending across the world will be slightly lower than expected in 2024 as the cost of investing in generative AI tools begins to hit businesses everywhere, experts have warned. A report from Gartner has claimed global IT spending will be affected by the widespread desire to jump on the AI bandwagon, but also the lifting of a widespread general malaise around technology. This "change fatigue" which apparently affected CIO spending earlier in 2024, has apparently lifted, with companies now keen to spend again, the firm's forecast claimed. Overall, Gartner says it expects worldwide IT spending to hit $5.26 trillion in 2024, an increase of 7.5% from 2023. However, this is a decrease from the 8% growth predicted in the previous quarter - with generative AI investment making up much of the costs, particularly in data center spending, which is expected to increase 24% in 2024. "Generative AI (GenAI) is being felt across all technology segments and subsegments, but not to everyone's benefit," said John-David Lovelock, Distinguished VP Analyst at Gartner. "Some software spending increases are attributable to GenAI, but to a software company, GenAI most closely resembles a tax. Revenue gains from the sale of GenAI add-ons or tokens flow back to their AI model provider partner." Elsewhere, spending on software is predicted to rise 12.6%, and device spending rising 5.4%. Investment on IT services is estimated to increase by 7.1%, a significant decrease on the 9.7% in the previous forecast, but one Gartner says was to be expected. "The change fatigue in CIOs that we saw at the start of the year has now abated and the contract backlogs going back to the third quarter of 2023 are being cleared. We expect to see a larger rush towards the end of the year to make up for the slow start," said Lovelock.

Gartner nudges down global IT spending forecast

Meanwhile, software vendors are left paying the GenAI 'tax' as users yet to see value Gartner has nudged down its expected growth in worldwide IT spending for 2024 from 8 percent to 7.5 percent, with the total figure now expected to reach $5.26 trillion. The global IT research biz and consultancy had previously upped its growth forecast from 6.8 percent to 8 percent based largely on repricing of communications services. Among the drivers of spending growth are datacenter systems, spending on which is forecast to increase 24 percent in 2024, up from the previous quarter's estimate of 10 percent growth, largely down to investment in the development of GenAI models. "The compute power needs of GenAI are being felt across the datacenter, and spending in that segment reflects this ravenous demand," said John-David Lovelock, Distinguished VP Analyst at Gartner told The Register. The downward revision of the growth figure for the year was made in part because the analyst has changed what it is tracking, but also because CIOs are holding off starting big projects for longer than expected. IT services spending is now projected to rise 7.1 percent in 2024, down from the previous forecast of 9.7 percent, for example. The slowdown was a result of so-called "change fatigue" among CIOs lasting longer than Gartner had expected. Lovelock explained that, following the pandemic, large scale digital transformation initiatives became the responsibility of CIOs, who had big projects and contracts in the offing from 2021 to 2023. But since then they have been reluctant to take on such large projects, focusing instead on helping departments with incremental cost savings. "It wasn't a money thing. Nobody was seeing budgets seriously cut or impinged. It was just a slowing down in committing to new things. That continued to slow down into April, which means coming up it's going to be a little bit bumpier and longer than we projected," he said. While GenAI spending is driving growth in datacenter investment, software vendors are expected to invest in the technology -- most likely via third parties -- while end users are yet to be convinced of the value GenAI may bring to the enterprise. At the moment, GenAI is akin to a tax on software vendors, he said. "For most software companies, it's not like they've had the time or the attention to develop their own GenAI models -- yet. They are going to go to a third party for that model... and hook into that via an API. The problem is the cost of the generative AI model inferencing is not necessarily tied to the value derived. So we have the vendor having to charge the cost of the Gen AI and the client paying for the value of the AI. Hopefully those two align but they don't by necessity," he said. Lovelock said most software companies did not have the resources to train their own AI models, and business users were still uncertain about the value of GenAI. As such, software companies will be forced to make some "bets" and hedging to give themselves as many possibilities in terms of the GenAI they integrate in their software. In January, Garnter said that most large user organizations were still in the planning stages of how they would deploy GenAI.

Data Center, Software Spending Jumps as Companies Invest in AI

Several IT companies have increased their capital expenditures to invest in artificial intelligence (AI), sending the sector's global spending higher amid the AI boom. Research and advisory firm Gartner forecasts global IT spending to grow to $5.26 trillion in 2024, a 7.5% increase from 2023, with the surge driven by AI, according to a report released Tuesday. Spending in data-center segments is to grow the most significantly, Gartner said, as Big Tech companies such as Microsoft (MSFT), Alphabet (GOOGL), Meta Platforms (META), and Amazon (AMZN), increase spending to invest in AI infrastructure required to train and run AI technology. Gartner's research said that while data-center spending is to part of a company's AI investment, some software spending can be viewed as a "tax" because part of the revenue gained from generative AI features goes back to AI model provider partners. Spending on data-center systems is expected to lead the IT segments. Gartner forecasts data-center spending to increase to $293.09 billion in 2024 -- a 24.1% jump from the year prior. The analysts said this rise in spending growth is "due in large part to increased planning for GenAI." "The compute power needs of GenAI are being felt across the data center, and spending in that segment reflects this ravenous demand," Gartner VP Analyst John-David Lovelock said. Meanwhile, an equities strategist for investment bank William Blair said that significant spending in AI infrastructure, like data centers and electrical equipment, has supported the "ongoing economic expansion." Software spending expansion is expected be the second largest after the data-center segment, but the Gartner analysts said this spending is in some ways more like a tax, rather than an investment. The effects of GenAI are "being felt across all technology segments and subsegments, but not to everyone's benefit," Lovelock said. The analysts added, "Some software spending increases are attributable to GenAI, but to a software company, GenAI most closely resembles a tax" when "revenue gains from the sale of GenAI add-ons or tokens flow back to their AI model provider partner." Gartner projects that 2024 software IT spending will be nearly $1.1 trillion, up 12.6% from 2023.

Gartner forecasts global IT spending to grow 7.5% in 2024

Worldwide IT spending is expected to total $5.26 trillion in 2024, an increase of 7.5% from 2023, according to the latest forecast by Stamford-based Gartner, Inc. This was a decrease from the previous quarter's forecast of 8% growth, but an increase of the overall spend forecast of $5.06 trillion, it said. "The change fatigue in CIOs that we saw at the start of the year has now abated and the contract backlogs going back to the third quarter of 2023 are being cleared. We expect to see a larger rush towards the end of the year to make up for the slow start," said John-David Lovelock, VP and Analyst at Gartner. He said Generative AI (GenAI) was being felt across all technology segments and subsegments, but not to everyone's benefit. "Some software spending increases are attributable to GenAI, but to a software company, GenAI most closely resembles a tax. Revenue gains from the sale of GenAI add-ons or tokens flow back to their AI model provider partner, " he added. Gartner outlook further said sending on data center systems was expected to increase 24% in 2024, up from the previous quarter's forecast of 10% growth. "The compute power needs of GenAI are being felt across the data center, and spending in that segment reflects this ravenous demand," opined Lovelock. Gartner, however, reported IT services spending was projected to grow 7.1% in 2024, down from 9.7% within the last forecast, due in part to slower spending across subsegments that include consulting and business process services." Gartner's IT spending forecast methodology relied heavily on rigorous analysis of the sales by over a thousand vendors across the entire range of IT products and services. Read Comments