Gartner: Gen AI Growth Driving $5tn Global IT Spending

Companies today must invest heavily in technologies that ensure business continuity, enhance customer experiences and drive operational efficiency. And with the emergence of groundbreaking technologies like generative AI (Gen AI), businesses today must allocate substantial resources to stay competitive.

According to the latest forecast by Gartner, worldwide IT spending is set to reach a staggering US$5.26tn in 2024, marking a 7.5% increase from 2023. This figure, while slightly lower than the previous quarter's projection of 8% growth, still represents a significant rise in global technology investments, largely driven by the Gen AI revolution.

One of the most notable trends influencing IT spending is the rise of Gen AI. This transformative technology is making waves across all technology segments, but its impact is not uniform. While some software spending increases can be attributed to Gen AI, it's important to note that for many software companies, Gen AI resembles more of a “tax” than a revenue generator. The bulk of the revenue from Gen AI add-ons or tokens often flows back to AI model providers, creating a complex ecosystem of winners and losers in the AI race.

Data centres: Powering the Gen AI revolution

Perhaps the most dramatic impact of Gen AI is seen in the data centre systems segment. Data centres have been the backbone of the digital world for decades, serving as centralised locations where computing and networking equipment is concentrated for the purpose of collecting, storing, processing, distributing and accessing large amounts of data. 

Traditionally, these facilities were designed to support basic web hosting, email services and business applications. However, the advent of cloud computing in the early 2000s marked a significant shift in data centre architecture and capabilities. Cloud data centres, operated by tech giants like Amazon, Google and Microsoft, have grown to become massive centres of computational resources, offering scalable and on-demand services to businesses worldwide, and laying the groundwork for the current Gen AI revolution.

Generative AI requires unprecedented levels of computational power. Training large language models (LLMs) like GPT-4 – which forms the basis of many Gen AI applications – demands massive parallel processing capabilities and enormous amounts of data storage.

Today's data centres are equipped with specialised hardware such as Graphics Processing Units (GPUs) and Tensor Processing Units (TPUs), designed to handle the complex mathematical operations required for AI and machine learning tasks. These facilities also incorporate advanced cooling systems, high-bandwidth networking, and sophisticated power management to support the intense workloads of Gen AI applications.

The increased spending on data centre systems reflects the need for continuous upgrades and expansions to meet the growing demands of Gen AI. Companies today are investing in more powerful servers, expanding storage capacities, and enhancing network infrastructure to support the development, training and deployment of Gen AI models.

Reflecting this, Gartner forecasts a remarkable 24% increase in spending on data centre systems in 2024, a significant jump from the previous projection of 10% growth.

John-David Lovelock, Distinguished VP Analyst at Gartner, explains: “The compute power needs of Gen AI are being felt across the data centre, and spending in that segment reflects this ravenous demand.”

While data centre systems are experiencing a boom, the IT services sector is facing a slight deceleration. The forecast for IT services spending growth in 2024 has been revised down to 7.1% from the previous projection of 9.7%. This adjustment is partly due to slower spending across subsegments such as consulting and business process services.

However, this slowdown appears to be temporary. Lovelock notes: “The change fatigue in CIOs that we saw at the start of the year has now abated, and the contract backlogs going back to the third quarter of 2023 are being cleared. We expect to see a larger rush towards the end of the year to make up for the slow start.”

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