Generative AI gold rush drives IT spending — with payoff in question

A scramble to invest in artificial intelligence and a natural replacement cycle for computing devices purchased during the COVID pandemic will lead to an 8% increase in global IT spending this year, Gartner predicted.

Interest in AI, building since last year, will push a 10% increase in data center system spending this year, driving worldwide IT spending to $5.06 trillion, said John-David Lovelock, distinguished vice president analyst at Gartner.

“No company got out of 2023 without having a story about how much better their company was going to be, how much better their products were going to be, how much better their customers’ lives were going to be because of generative AI,” he said. “There were very robust stories about how great generative AI was going to be.”

That said, CIOs buying into the AI hype should beware that their ambitions are likely out front of their execution, Lovelock said. According to a Gartner survey conducted in late 2023, 42% of CIOs planned to deploy generative AI tools by the third quarter of this year, with 55% planning to roll out some other type of AI or machine learning in the same timeframe.

But those timelines — and investments — are “highly aspirational,” Loveland said. “There’s no way most companies are going to get anywhere near this. They are not going to have a meaningful generative AI product or service running at their company by the end of this year.”

In other words, CIOs are likely to be apportioning more budget toward speculative initiatives less likely to pan out.

What does AI give me?

Companies buying the marketing hype about the benefits of AI need to look for proofs of concept, added Mark McDonald, a distinguished vice president analyst at Gartner. The first deployments of generative AI will likely be focused on simple tasks, such as drafting responses to emails and analyzing contracts.

“It takes more than just installing software to make gen AI work,” McDonald said.

A huge problem with AI adoption is a lack of a clear and compelling investment approach, McDonald added. “Many gen AI initiatives are being driven off the board and the C-level executives with this fear of falling behind,” he said. “Everybody is still pretty much at the starting line from an enterprise perspective.”

AI promises cost savings, productivity improvements, and better customer experiences, but CIOs need to figure out how to calculate the ROI, McDonald said. “The question then becomes, ‘What am I going to get from this?’” he added. “That investment is not necessarily trivial.”

While enterprises look to adopt AI, many software vendors will be flooding the market with AI-based products in the next two years, Lovelock suggested. AI-based email and collaboration tools, content services, and CRM are already here, and AI-based security software, supply chain management, app development, and ERP are coming or have come this year, he noted. Many AI apps will become commonplace in the next year or two.

“If [vendors are] looking for a first-mover advantage, this is a one-year window in many software areas, two at the most,” he said. “If you allow your competition to have a gen AI product and you didn’t, you’re going to lose market share. Gen AI systems will be coming into every product and service.”

Still, early returns, associated price hikes, and questions around value add have some CIOs not entirely sold on generative AI features just yet.

Data centers shoulder the load

To support AI workloads, spending on data center systems will increase by 10% in 2024, Gartner predicted, compared to a 4% increase in 2023. Hyperscalers will buy about 70% of the AI servers purchased this year, Loveland predicted.

Gartner’s new IT spending forecast predicts spending growth in all five major IT categories, including software, IT services, and communications services.

In January, Gartner had predicted a 6.8% increase in IT spending this year, and it measured a 3.3% growth in 2023.

Software spending will see the largest percentage growth in 2024, with 13.9%, but IT services and communications services remain the largest two IT categories, with 2024 spending at $1.39 trillion and $1.49 trillion, respectively.

Another big change from 2023 comes in the devices category, which saw a 9.1% drop in 2023. Gartner predicts spending on smartphones, PCs, and tablets will increase by 3.6% this year, as enterprises and consumers begin to replace the huge number of devices purchased in 2021 for employees and students staying home during the COVID pandemic.

About $809 billion worth of devices were sold in 2021, while Gartner predicts $687 billion in device spending in 2024, after a couple of flat to down years.

“We’re finally getting back to a regular replacement cycle,” Loveland said. “Enterprises are coming back three years later and saying, ‘Now it’s time to start refreshing the devices again.’”