Enterprises spent about $19.4 billion worldwide on generative artificial intelligence (genAI) technologies in 2023 — and that amount is expected to double this year, according to research by IDC.
Organizations are spending on genAI software as well as related infrastructure hardware and IT/business services. By 2027, spending is expected to reach $151.1 billion, representing a compound annual growth rate of 85.9% over the 2023-27 period.
"Despite IT headwinds in 2023, businesses accelerated their exploration of genAI to boost business transformation," Rick Villars, IDC group vice president, said in a statement. "In 2024, the shift to AI everywhere will enter a critical buildout phase as enterprises make major new investments with the goal of drastically reducing the time and costs associated with customer and employee productivity use cases. From there, the focus will shift to investments that boost revenue and business outcomes."
IDC expects genAI investments to follow a natural progression over the next several years as organizations move from early experimentation to aggressive infrastructure and trained data model building to widespread adoption with extensions to the edge of all business activities.
Generative AI’s meteoric rise can be compared to the launch of social media, the smartphone, and the internet, according to research firm Forrester Group, which estimated the spend on genAI will grow 36% annually through 2030. GenAI is expected to capture 55% of the total AI software market, according to Forrester.
IDC’s expectation is that by the end of 2027, genAI spending will account for 29% of overall AI spending, up significantly from 10.8% in 2023.
“GenAI spending will remain strong well beyond the build out phase, as these solutions become a foundational element in enterprises' digital business control platforms,” IDC said.
By 2030, $42 billion will be spent annually on genAI for generalized use cases, such as research, writing, and summarizing tools. And organizations will collectively spend $79 billion a year on specialized applications designed to boost automation and productivity, especially in the security, health, and content marketing industries, according to an earlier Forrester study.
For example, AI-based software augmentation tools such as GitHub Copilot and Replit, are making software development more accessible for engineers and citizen developers alike, according to Forrester.
More than half of spending on generalized use cases will focus on chatbot and communications platforms, which is likely to drive substantial improvements in customer and employee experience.
While companies of all kinds will see a shift in their tech spending toward AI implementation and the adoption of AI-enhanced products and services, the IT industry will make a bigger, faster shift to genAI during the same period.
“This is because every company will race to introduce AI-enhanced products and services and to assist their customers with AI implementations. For most, AI will replace cloud as the lead motivator of innovation,” IDC said.
Two-thirds (66%) of business leaders say their company has deployed private, secure generative AI tools to the workforce, and a similar number (65%) say their department has been tasked to identify use cases for their organization, according to research by solutions integrator service provider Insight Enterprises.
GenAI Infrastructure, including hardware, Infrastructure as a Service (IaaS), and system infrastructure software (SIS), will represent the largest area of investment during the build-out phase, according to IDC. But genAI Platform and Application Software will gradually overtake infrastructure by the end of 2027 with a five-year CAGR of 99.1%.
Similarly, GenAI Services, including IT and business services, will nearly equal infrastructure spending by the end of the period with a five-year CAGR of 94.6%.
"Generative AI has served as a catalyst for investments in traditional AI solutions. The synergy between traditional and generative AI opens up a world of possibilities across industries," said Ritu Jyoti, IDC’s group vice president for Worldwide Artificial Intelligence and Automation services. "As we look ahead to the future of AI, embracing a holistic approach that merges traditional AI with generative creativity will enable more versatile AI systems capable of adapting to evolving challenges, while fostering disruptive innovation."