The Future of Generative AI: Spending Trends and Evolving Expectations

Generative AI is set to transform industries, and according to a recent report from Gartner’s Distinguished VP Analyst John Lovelock, global spending on generative AI is poised to surge dramatically in 2025. With projections indicating a remarkable growth to $644 billion—up 76.4% from 2024—the landscape of AI technology is evolving rapidly.

A Shift in the Hype Cycle

Gartner’s Hype Cycle delineates the journey of new technologies, and currently, generative AI is entering what they describe as the “Trough of Disillusionment.” This phase reveals a pattern where organizations that initially experimented with ambitious AI projects may find themselves at a crossroads, grappling with unmet expectations and mixed results. Lovelock points out that this phase of skepticism is likely to persist until 2026, when transformational use cases are expected to emerge and reinvigorate productivity through generative AI.

Long-Term Growth on the Horizon

Despite the current sentiment, Gartner forecasts an upward trajectory for generative AI spending for at least the next five years. A significant driver of this growth will be the services sector, where adoption rates for generative AI applications and managed services could see astonishing compound annual growth rates (CAGRs) of 132.5% and 131.8%, respectively.

The report highlights several notable financial projections within the generative AI domain from 2023 to 2028:

Smartphones: $438,434 million by 2026
AI-Optimized Servers: $183,018 million by 2026
AI PCs: $146,259 million by 2026
By 2028, CAGR predictions include:
- 171.6% for smartphone applications using generative AI
- 139.9% for AI-optimized Infrastructure as a Service (IaaS)

While some areas of application see lower CAGRs—like conventional AI-optimized servers (34%) and generative AI applications in software (64.7%)—they are still expected to gain traction over the next few years.

Moreover, the consulting field is ripe with potential. Gartner predicts a robust 111.8% CAGR for GenAI technology consulting services, which help organizations refine their AI-related strategies, distinguishing itself from merely suggesting ideas generated by AI models.

Consumer Confidence and Hardware Trends

Recently, several notable generative AI initiatives faltered, causing a dip in confidence around the technology. For instance, Humane’s much-anticipated AI pin failed to reshape how people interact with devices, and Microsoft Copilot faced backlash over perceived security weaknesses.

Gartner suggests that consumer dissatisfaction regarding generative AI features integrated into everyday products will likely persist. This is a crucial point, as many tech firms are incorporating generative AI as a standard feature in devices, regardless of actual consumer desire. As Lovelock aptly notes, the purchase of AI-enabled devices may not be a reliable indicator of consumer demand, since people often find themselves "forced" into these purchases due to the inherent nature of upgrades.

Looking Ahead: Questions for Business Leaders

For business leaders navigating this evolving AI landscape, 2025 and 2026 will be pivotal. Here are some questions they should consider:

Core Functionality: Should generative AI play a central role in your business operations?
Routine Tasks: Can AI streamline tedious tasks that hinder productivity?
Professional Communication: Would utilizing AI to draft quick emails or summaries enhance efficiency upon returning from breaks?
Creative Boundaries: In creative industries, how do we navigate the use of AI without compromising quality or entering legal gray areas?

These critical conversations will shape the future of AI in business—leading to pivotal decisions about how to effectively implement and utilize these advanced technologies.

As we continue to wade through this transformative landscape, it’s essential to keep an eye on the trends and insights shaping the generative AI market.

The AI Buzz Hub team is excited to see where these breakthroughs take us. Want to stay in the loop on all things AI? Subscribe to our newsletter or share this article with your fellow enthusiasts.