Gartner Inc. predicts a notable increase in worldwide IT spending, projected to grow 9.8% to $5.61 trillion in 2025, ahead of the 7.7% increase anticipated for 2024. This significant surge, however, is largely driven by rising prices for existing products and services rather than an expansion in IT innovation or new investments, according to the research firm. John-David Lovelock, a Gartner VP analyst, highlighted that CIOs have set unusually high budgets to accommodate these price increases, a distinct shift from the period between 2016 and 2020 when such hikes were mitigated through contract negotiations.
The Impact of Rising Prices on IT Budgets
Software and Data Center Pricing Trends
Since 2022, software providers have escalated prices for cloud offerings in response to higher costs related to skills and operations, compounded by potential tariffs from the Trump administration. This ripple effect in pricing is drastically reshaping IT spending patterns, with software spending expected to rise by 14.2% in 2025 compared to a 12% increase in the previous year. The dramatic increase is indicative of a new normal in software procurement, significantly influencing overall IT expenditure. Data center systems, in particular, are propelling this spending surge with a forecasted 23.2% growth, following an exceptional 39.4% growth in 2024.
Lovelock attributes this to a major shift in spending on data center servers driven by generative AI, which he describes as a significant market dynamic change. This trend toward substantial investments in data center systems underscores the heightened importance of robust infrastructure capable of handling complex AI workloads. The rise in data center spending is not just a blip but indicative of a continuing trajectory shaped by advancements in AI technology. As businesses continue to embrace AI-driven solutions, the demand for sophisticated and efficient data center systems will only intensify, pushing IT budgets higher.
CIOs Adjusting Budgets to Cope with Rising Costs
With the escalating costs, CIOs have adapted by setting exceptionally high budgets, a clear deviation from the era between 2016 and 2020 when contract negotiations helped mitigate such price hikes. This shift reflects a more proactive approach to budget management, ensuring organizations remain competitive despite price inflations. The shift represents a calculated strategy to navigate the labyrinthine landscape of modern IT procurement, securing necessary resources without compromising on technological advancement.
CIOs are now planning ahead, anticipating these financial demands and making preemptive adjustments to their budgets. They are prioritizing spending on essential services and technologies, ensuring that their organizations can leverage the latest advancements without being crippled by cost. This new budgeting philosophy underscores the criticality of foresight in financial planning within the IT sector, enabling organizations to stay ahead of the curve.
AI Revolution and its Financial Implications
The Role of Generative AI in IT Spending
Looking ahead to 2028, hyperscalers, service providers, colocation, and cloud facilities are expected to invest approximately $1 trillion in AI-optimized servers, potentially tripling server spending over the past two decades. Despite signs that generative AI is nearing the “trough of disillusionment” stage in its hype cycle, Lovelock suggests that this reflects a typical adoption cycle and should not imply a decline in interest. Instead, 2025 may be focused on realistic applications of AI technology, demonstrating its pivotal role in future IT spending.
The anticipated massive investments in AI-optimized servers reflect a commitment to leveraging AI’s potential across multiple sectors. Organizations are gearing up for the next wave of AI-driven innovation, understanding that the foundational infrastructure must be built today to support tomorrow’s applications. The focus is on practical, real-world implementations of AI that offer tangible benefits rather than speculative advantages. This pragmatic approach ensures that businesses are prepared for the substantial financial outlays required to stay competitive in an increasingly AI-focused market.
The Burgeoning Costs of AI Model Training
Current models cost over $100 million to train, with next-generation models potentially reaching $10 billion per model by 2026-2027. This financial barrier will likely limit market entry for new players. Nevertheless, established IT services companies and hyperscalers will dominate IT spending, particularly as these AI model training costs continue to skyrocket. This scenario hints at a future where the landscape of IT spending is heavily influenced by the financial demands imposed by cutting-edge AI developments.
The high costs associated with AI model training are a formidable barrier, necessitating substantial financial resources that many potential market entrants simply do not possess. This creates an environment where only the largest and most financially robust organizations can afford to lead in AI development. These companies will likely dominate the market, shaping the future of AI applications and influencing broader IT spending patterns. The trickle-down effect of these high investments will be felt across the entire tech industry, pushing smaller firms to find innovative ways to compete or collaborate with these industry giants.
Future Trends and Challenges
Impact on PC Sales and Device Market
A resurgence in PC sales is anticipated due to scheduled replacements of units purchased during the COVID-19 pandemic and Microsoft’s plan to end Windows 10 support by October 2025. This will contribute to a projected 10.4% growth in device sales, building on a 6% growth rate the previous year. Many replacement devices are expected to be AI PCs featuring neural processing units, which Gartner forecasts will constitute 43% of shipments in 2025 and nearly 100% by 2026. However, the current lack of software to fully utilize this AI functionality means that this push is more about future-proofing.
The anticipated replacement cycle represents a significant opportunity for vendors, particularly as businesses and consumers seek devices capable of handling the latest software advancements. AI PCs, equipped with neural processing units, are at the forefront of this shift, although their full potential is yet to be realized due to software limitations. Nevertheless, this trend highlights the industry’s commitment to future-proofing, ensuring that new devices are not only capable today but also ready for tomorrow’s technological advancements. This bodes well for the device market, indicating a robust phase of growth driven by strategic replacements and forward-looking investments.
Overcoming Software Limitations
Gartner Inc. forecasts a substantial rise in global IT spending, which is expected to grow by 9.8% to reach $5.61 trillion in 2025. This is compared to a 7.7% increase anticipated for 2024. However, this significant jump isn’t due to an uptick in IT innovation or new investments, but rather because of the increasing prices of existing products and services, as stated by the research firm. John-David Lovelock, a VP analyst at Gartner, pointed out that Chief Information Officers (CIOs) have planned for exceptionally high budgets to cope with these price rises. This approach marks a notable shift from the years between 2016 and 2020 when such price hikes were often managed through contract negotiations. It appears that the IT sector is undergoing a phase where the focus is more on adjusting to the current costs rather than pushing for groundbreaking innovations. This change suggests that businesses need to strategize accordingly, prioritizing budget allocations to maintain their tech infrastructure amidst rising costs.
