Worldwide spending on generative AI (GenAI) is projected to reach $644 billion in 2025, marking a 76.4% increase from 2024, according to a report by Gartner.
John-David Lovelock, VP Analyst at Gartner, highlighted that while expectations for GenAI’s capabilities are declining due to high failure rates in initial proof-of-concept (POC) work and dissatisfaction with current results, foundational model providers are continuing to invest billions annually to improve GenAI models’ size, performance, and reliability. This paradox is expected to persist through 2025 and 2026.
Lovelock noted that GenAI spending is poised for significant growth across all core markets and submarkets in 2025, suggesting that AI technologies will 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,” he said.
Despite ongoing model improvements, CIOs will likely reduce POC and self-development efforts, instead focusing on GenAI features from existing software providers, according to Lovelock.
The growth in GenAI spending will largely be driven by the integration of AI capabilities into hardware, such as servers, smartphones, and PCs, with 80% of the spend directed towards hardware. The increasing prevalence of AI-enabled devices, expected to dominate the consumer device market by 2028, will heavily influence the market’s growth trajectory. However, Lovelock points out that consumers are not actively pursuing these AI features, and as manufacturers embed AI into consumer devices as a standard feature, consumers will be compelled to purchase them.
