AI drives data center boom as CIOs hit pause on net-new IT spend

Worldwide IT spend will reach $5.43 trillion this year, an increase of 7.9% over 2024, and it comes at a time when CIOs appear to be pausing their net-new spending as a result of political uncertainty, according to Gartner’s latest forecast, released Tuesday.

Despite this, ongoing AI and generative AI (genAI) digitization initiatives are not being affected. “[While] both software and services spending growth in 2025 are expected to slow down due to this ‘uncertainty pause,’ spending in AI-related infrastructure, such as data center systems, continues to surge,” said John-David Lovelock, distinguished VP analyst with the research firm.

The forecast is segmented into five areas with wildly varying growth predictions: data center systems, expected to soar with 42.4% growth, devices, with predicted 5.4% growth, software, with growth expected to hit 10.5%, IT services, with 4.4% growth over last year, and communication services, predicted to grow by 2.1%.

Explosive growth of AI-optimized servers

Data centers in particular, said Lovelock, “are experiencing a surge driven by genAI, with spending on AI optimized servers, which was virtually nonexistent in 2021, expected to triple that of traditional servers by 2027. This is a tremendous market. It is changing rapidly, and it’s all down to the AI optimized servers.”

In 2024, that sector, said Gartner, experienced explosive growth, topping 2023 numbers by a whopping 40.3%. And this year, Gartner is estimating an expected increase of 42.4%.

In 2026, Lovelock said in an interview with CIO.com, Gartner is projecting that “we [will] spend three times as much on AI optimized servers as we do on traditional servers in that year; by the time we get to 2029 we will have spent more on AI optimized servers than we have ever spent on traditional servers. That is a mind blowing amount of money to be spending on a new product offering.”

“[It is indicative of] the level of commitment that is in the market. It is the recognition that the biggest trend, the biggest signal that is coming through is that gen AI will be part of everything,” he observed. “It’s a general purpose technology. It’s like salt. It’s going to sprinkle on everything and make everything better; it’ll be in the PCs, the tablet, mobile phones, the TV, your car, and it’ll be in every piece of software that you run.”

Gartner is forecasting that the total spend on all five segments in 2026 will reach $5.9 trillion, with spending increases over 2025 for communications services (3% expected growth), and devices (6.5%) similar to 2025 levels, modest increases in spending on services (6.9%) and software (14.1%), and data center systems’ predicted growth over 2025 plummeting to 16.3%,  the result of a reduced growth spurt for AI optimized servers compared to the 2023-2025 time period.

Buying pause ‘a strategic decision’

Lovelock said that while the world has paused since the Trump administration’s so-called Liberation Day relating to tariffs, the industry will not sit and wait for a solution before moving on.

He added, “we will get used to this new level of uncertainty, and we’ll continue to do business in it. Whether or not it subsides, whether or not the tariff situation resolves or continues to be an ongoing situation, the pause won’t last.”

The pause “does not stem from budget cuts, as budgets remain fully allocated,” he said. “Rather it is a strategic decision to delay new expenditures. The IT hardware and infrastructure sectors are particularly affected due to price increases and supply chain disruptions. In contrast, ongoing or recurring spending, such as cloud and managed services, is maintaining greater stability.”

He noted, “we had built in a good level of increased spending on the AI optimized servers that are driving this market. We did expect it to get very large by 2028. What has surprised me is that we are now projecting triple the spend over traditional servers on these AI optimized servers that practically did not exist three years ago.”

Gartner’s predictions will be shaped around two scenarios, he said. “We publish on what we call our most likely scenario, and we don’t waver from that. … We also have included now two scenario approaches that we call short, shallow and long, deep that are based on what happens with US policy.”

The short, shallow scenario would see business and consumer confidence high, inflation under control and a reduction in interest rates, said Lovelock. In the long, deep scenario, everything is the opposite.

“[That] is where US policy continues to be capricious for the next four years and it erodes consumer confidence. The idea behind the two scenarios is to say spending is going to be somewhere in between these two.”