Worldwide generative AI (GenAI) spending is expected to total $644 billion in 2025, an increase of 76.4 percent from 2024, according to the latest forecast by Gartner, Inc.
This spending is poised for significant growth across all core markets and submarkets this year, with services expected to witness the largest growth at 162.6 percent. Gartner also expects spending to increase by 93.9 percent for software, 99.5 percent for devices and 33.1 percent for servers.
“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. 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,” stated John-David Lovelock, distinguished VP analyst at Gartner.
Self-development efforts to decline
The report added that GenAI will also 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.
“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,” added Lovelock.
AI-enabled devices to drive spending growth
Gartner added that GenAI spending in 2025 will be driven largely by the integration of AI capabilities into hardware, such as servers, smartphones and PCs, with 80 percent 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. 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,” added Lovelock.
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GenAI demand to propel semiconductor market growth
As demand for artifical intelligence and GenAI rises, the semiconductor market is also expected to witness major growth in the coming years. In an earlier report, Gartner revealed that global semiconductor revenue in 2024 totaled $626 billion, an increase of 18.1 percent from 2023. Revenue is projected to total $705 billion in 2025.
“The rising demand for AI and generative AI (GenAI) workloads led data centers to become the second-largest market for semiconductors in 2024, behind smartphones. Data center semiconductor revenue totaled $112 billion in 2024, up from $64.8 billion in 2023,” said George Brocklehurst, VP analyst at Gartner.
