IDC: Expect AI spending to more than double to $632B

Worldwide spending on artificial intelligence (AI), including AI-enabled applications, infrastructure, and related IT and business services, will grow by more than 29% annually at least through 2028 and reach a value of $632 billion, according to a new IDC Worldwide AI and Generative AI Spending Guide.

The financial services industry is expected to spend the most on technology, with banking leading the way; financial services will account for more than 20% of all AI spending, followed by software and information services and retail. Combined, those three industries will account for roughly 45% of all AI spending during the period.

The industries likely to see the fastest AI spending growth are business and personal services (with a 32.8% combined annual growth rate) and transportation and leisure (31.7% CAGR). In addition, 17 of the 27 industries included in the spending guide are forecast to have five-year CAGRs greater than 30%.

The growth in spending is driven mostly by the rapid incorporation of AI, and generative AI (genAI) in particular, into a wide range of products, according to IDC.

“AI-powered transformations have delivered tangible business outcomes and value for organizations worldwide and they are building their AI strategies around employee experience, customer engagement, business process, and industry innovations,” Ritu Jyoti, group vice president of AI and Data Research at IDC, said in a statement.

As AI continues to evolve, Ritu said barriers to “AI adoption at scale will continue to diminish.”

While genAI has captured the world’s attention over the past 20 months, spending on that technology will account for only one-third that for all other AI applications, such as machine learning, deep learning, and automatic speech recognition and natural language processing, according to IDC.

The rapid growth in genAI investments, however, means it will outpace the overall AI market with a five-year combined annual growth rate of 59.2%, according to IDC.

By 2028, IDC expects spending on genAI tools and platforms to reach $202 billion, representing 32% of overall AI spending.

Even as AI reshapes the hiring and skills landscape, the technology itself will eventually just be embedded in all digital tools, meaning in four years most executives won’t even be using the term “AI.”

“Really, we’re seeing its use mainly in development, software, testing, quality, customer care service as initial use cases. So, it’s slowly getting woven into everyone’s work,” Ken Englund, who leads EY’s Americas Technology Growth sector, said in a recent interview.

IDC also found software will be the largest category of AI technology spending, representing more than half the overall market for most of the four-year forecast.

AI spending in the United States is expected to reach $336 billion in 2028, making it the largest geographic region for AI investment and accounting for more than half of all AI spending through 2028. GenAI spending in the US is forecast to hit $108 billion by 2028.

Western Europe will be the second largest region for AI spending, followed by China and Asia/Pacific (excluding Japan and China), according to IDC.

Two-thirds of all software spending will go to AI-enabled applications and platforms, or software that provides tools and resources for building, training, deploying, and managing AI applications.

The demand for AI platform software is expected to grow 40% a year over the next four years, rising from $27.9 billion in sales last year to $153 billion in 2028, according to an earlier IDC report. That report focused on the rapid pace by which AI platforms, such as Microsoft Azure AI, Amazon AI services, Google Cloud AI, and OpenAI grew last year, and how that growth is projected to maintain a “remarkable momentum,” driven by the increasing adoption of technology across many industries.

A large remainder of AI spending, according to IDC, will be on AI application development and deployment and AI system software (which provides basic foundational layers that enable bare metal infrastructure hardware resources to host higher-level application development and deployment).

Spending on AI hardware, including servers, storage, and Infrastructure as a Service (IaaS), will be the next-largest category of tech spending.

“While industry-specific AI use cases approach 27% of the total spend by the end of the forecast period, the business functions that IDC expects will see accelerated AI investment are customer service, IT operations, and sales.” Karen Massey, research director for IDC’s, Data & Analytics research, said in a statement.