GenAI investment boom drives IT spending, but returns remain in question

According to research firm Gartner’s forecast, global IT spending will grow by 8% in 2024 due to competition to invest in AI and the arrival of the IT equipment replacement cycle.

According to John-David Lovelock, vice president and analyst at Gartner, people’s interest in artificial intelligence has been growing since last year. This will drive a 10% increase in data center IT spending this year, bringing total global IT spending to $506 million.

He said: "In 2023, many companies do not know that their business, products, and customer experience will become better due to the adoption of GenAI. And there are many very interesting stories about the powerful functions of GenAI."

He warned chief information officers (CIOs) who are keen to invest in AI not to aim too high. According to a survey conducted by Gartner, 42% of CIOs plan to deploy GenAI tools by the third quarter of 2024, and 55% plan to launch other types of AI or machine learning tools during this period.

Lovelock said that the timelines and investment plans of these companies are "very idealistic" and "most will not achieve their goals. By the end of this year, they are unlikely to have meaningful GenAI or Serve". In other words, CIOs may allocate more budget to projects that are less likely to succeed.

What does AI bring?

Mark McDonald, vice president and analyst at Gartner, added that some companies are demonstrating the benefits of AI. The first applications of GenAI are likely to focus on simple tasks such as drafting responses to emails and analyzing contracts.

“For GenAI to be important, it’s not enough to just install the software,” McDonald said.

A huge problem with AI adoption is the lack of a clear and compelling investment approach. He said: "Many generative AI projects are driven by boards of directors and C-level executives who are afraid of falling behind." He said, "From an enterprise perspective, everyone is still at the starting line." McDonald said that AI Cost savings, increased productivity and improved customer experience are expected, but CIOs need to figure out how to calculate ROI. Some CIOs ask the question, "What do I get out of this?" because it can be a costly investment.

Lovelock believes that while enterprises seek to adopt artificial intelligence, many software vendors will flood the market with artificial intelligence-based products in the next two years. He pointed out that some AI-based email and collaboration tools, content services and CRM have already appeared on the market, while AI-based security software, supply chain management, application development and ERP are about to appear or have already appeared. Many AI applications will become commonplace in the next year or two.

He said: "If a vendor wants to get a first-mover advantage, in many software areas, the window is only one year, two years at most. If you allow competitors to have GenAI products and you do not, you will Losing market share. GenAI will be in every product and service.” Still, early returns on GenAI, rising prices, and doubts about added value have left some CIOs not yet fully convinced of GenAI’s capabilities.

Data center IT spending to grow 10% in 2024

Gartner predicts that to support workloads running AI, spending on data center systems will grow 10% in 2024, compared with 2023 The growth rate is 4%. Loveland predicts that AI servers purchased by hyperscale enterprises this year will account for approximately 70% of overall purchases.

According to Gartner’s latest IT spending forecast, spending in the five major IT categories, including software, IT services and communications services, will all grow.

Gartner predicted in January this year that IT spending would grow by 6.8% in 2024, compared with a growth rate of 3.3% in 2023.

Software spending will grow at 13.9% in 2024, but IT services and communication services will still be the two largest spending IT categories, with global spending in 2024 of US$1.39 trillion and US$1.49 trillion respectively. Dollar.

Another big change in 2024 compared to 2023 is the equipment category, where spending fell 9.1%. Gartner predicts that spending on smartphones, PCs and tablets will grow 3.6% in 2024 as businesses and consumers begin to replace the large amounts of IT equipment purchased for employees and students during the 2021 epidemic

Global 2021 Annual IT equipment spending is approximately $809 billion, and Gartner predicts that global IT equipment spending will reach $687 billion in 2024, after several years of flat or declining.

Loveland said, "We are finally back to a normal equipment replacement cycle. And in three years, companies will be refreshing their equipment again."

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