Hyperscalers, vendors funding trillion dollar AI spree, but users will have to pay up long term

Software vendors and cloud providers are bearing the burden of the expected trillion-dollar increase in AI spending this year, as investment hits $2.52 trillion, according to Gartner.

The global tech analyst company predicts a 44 percent increase from last year's AI spending figure $1.76 trillion. This was revised up from a September estimate of $1.5 trillion.

That $2.52 trillion figure will nearly double again, to $4.7 trillion, by 2029, Gartner predicted. However, John-David Lovelock, Distinguished VP Analyst at Gartner, told The Register that cloud hyperscalers and software vendors were likely to pick up the bulk of the bill in the short term - although enterprise IT may have to pay in the long term.

Users were also likely to employ enterprise software vendors' AI agents for initiatives, rather than build their own AI platforms with third-party technologies.

Lovelock said: "Hyperscalers are buying billions of dollars' worth of servers and trying to build the foundation for the next super cycle of intelligence. There are consumers who are happily taking on these chat clients, creating wonderfully inventive cat videos and purchasing those devices, the mobile phones, the PCs, the tablets that are all now AI-enabled.

"There's the regular enterprise consumer or the enterprise buyer, whether that's the CIO or the board-appointed special group who are saying, 'Get me something AI'."

However, enterprise users are in the "trough of disillusionment" with AI, as project failure rates hitting about 90 percent, he said.

"We're starting to see the end of the investment line. We had a thousand flowers blooming, now it's time to prune the garden. We are getting to the point where we go from 'that was a great idea' to 'where's my revenue?' That's a normal part of any new technology," he said.

During the coming period, enterprise users are more likely to turn to their trusted software vendors to build AI into their solutions rather than attempt to stitch a solution together themselves with third-party software.

"They're going to be looking for solutions that come from their incumbent providers, both software and services," Lovelock said.

For example, Salesforce already had Einstein, ChatGPT and Agentforce built into its software portfolio, he said.

"It gives users the opportunity of a low-risk project if, in some cases, the software is coming as part of an update, they may not even be paying [extra] for it," he said.

In December last year, Salesforce's chief revenue officer Miguel Milano said he was relaxed about the CRM giant losing money on fixed-price AI agent contracts in the short term because it would be able to claw back the investment in the long term.

"I have another 20 years to monetize that customer," Milano said late last year.

Lovelock said it was fair to encapsulate SaaS software vendors' approach as being as happy to take short-term losses on AI investment because they would have plenty of opportunities to make the margins that their investors expect in the long term.

But he said vendors were also making a defensive play.

"If you're a Salesforce, you have to have AI in order to defend your CRM revenue. This year, more than half of the money being spent on enterprise application software will be spent on applications with GenAI in them. If a vendor's product does not have GenAI, the market expectations for growth are negative. It's a collapsing market without AI," Lovelock said. ®