Gartner: GenAI is costing software firms, not turning a profit

Gen AI is like a “tax” on software companies, which are seeing any revenue gains from the technology flow back to their AI model provider partners, according to Gartner.

In the latest update of its quarterly IT spending report, the US consultancy said that as GenAI investment has increased, add-ons or tokens are taking return on investment (ROI) to a negative.

The technology is also proving expensive elsewhere, as data centre systems spending is expected to increase by almost 25% in 2024 because of a rise in GenAI planning, up from the previous quarter’s forecast of 10%. By comparison data centre spending in 2023 was just 4%.

“The compute power needs of GenAI are being felt across the data centre [sector], and spending in that segment reflects this ravenous demand,” said John-David Lovelock, VP analyst at Gartner.

“The significant increase in data centre spending is no surprise, given GenAI’s rapid growth and storage demands,” said Chris Harris, VP field engineering at cloud database provider Couchbase.

“But to unlock GenAI’s full potential, organisations require a data management strategy coupled with modern infrastructure.”

“Organisations must ensure they can control data storage, access, and usage, enable real-time data sharing, and maintain a consolidated database infrastructure to prevent multiple versions of data,” Harris advised.

“Doing so will significantly reduce the risk of project failures, cutbacks, or delays – and allow companies to confidently explore new GenAI use cases,” he added.

Elsewhere, Gartner expects less investment. For the IT services sector, the influential firm trimmed its prediction for 2024 spending from 9.7% in Q1 to 7.1% in this quarter – due to a lower-than-expected spending on consulting and business process services.

The consultancy blames this on CIO “change fatigue,” but anticipates “a larger rush towards the end of the year to make up for the slow start,” according to Lovelock.