Forecast: Generative AI spending to hit $644 billion in 2025 despite tech limitations

Generative AI spending is surging worldwide as businesses integrate AI capabilities into hardware, software, and services despite persistent technological limitations. Gartner’s latest forecast reveals a shift in corporate strategy as companies move away from ambitious internal AI projects toward commercial solutions that offer more predictable implementation and value. This strategic pivot comes during a critical phase where generative AI’s potential remains largely unfulfilled, creating tension between soaring investment and uneven real-world performance.

The big picture: Global spending on generative AI will reach $644 billion in 2025, a dramatic 76.4% increase from last year, according to Gartner’s latest forecast.

• Hardware integration will consume about 80% of this increased spending, with manufacturers embedding AI capabilities into servers, PCs, and smartphones.
• By 2028, Gartner expects AI features to become standard in nearly all consumer devices, regardless of whether consumers specifically demand these capabilities.

Why this matters: Despite significant investment, generative AI remains technologically immature, with hallucinations and inaccuracies undermining its reliability and business value.

• The disconnect between AI’s current limitations and its promised potential is creating a challenging environment for CIOs who must justify continued investment.
• Apple Intelligence exemplifies this tension, with features either underperforming or facing continued delays despite being central to iPhone 16 marketing.

Behind the numbers: Gartner’s forecast breaks down 2025 generative AI spending across multiple categories, showing how investment is flowing across the AI ecosystem.

• Companies will spend $27.7 billion on AI services and $37.1 billion on AI software.
• Device-related expenditures will reach $398.3 billion, while server-related spending will total $180.6 billion.

What they’re saying: Gartner’s Distinguished VP Analyst John-David Lovelock believes 2025 will mark a turning point in how companies approach generative AI implementation.

• “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,” Lovelock noted.
• He also observed that “consumers are not chasing these features. As manufacturers embed AI as a standard feature in consumer devices, consumers will be forced to purchase them.”

The bottom line: The generative AI market shows no signs of slowing despite technological shortcomings, creating a situation where vendors and customers continue investing heavily while waiting for the technology to mature into the transformative force it promises to become.