Generative AI Surge, IT Spending Trends, Governance Challenges, and Market Predictions

[00:00:02] It's Monday, October 28th, 2024, and I'm Dave Solt. Four things to know today. Generative AI demand drives a 35% surge in infrastructure spend. Forrester and Gardner highlight keys to digital success and look into ROI. From AI cost miscalculations to Intel's uncertain future, some analysts lay out IT's upcoming shakeups and Ingram Micro's IPO and IBM's consulting challenges reflect new priorities in IT.

[00:00:31] This is the Business of Tech. Global IT spending is projected to grow by 9.3% year-over-year in 2025, reaching $5.74 trillion, according to a recent Gartner report. This year alone, spending is expected to exceed $5.3 trillion, with IT services remaining the largest category, accounting for about 30% of the market.

[00:00:56] The report highlights a significant 35% year-over-year increase in infrastructure spending due to AI-directed investments, with server sales anticipated to surge as CIOs transition from pilot programs to full-scale generative AI implementation.

[00:01:14] Gartner analyst John David Lovelock notes that the demand for generative AI will nearly triple server sales from 2023 to 2028.

[00:01:24] Lovelock warns that organizations must navigate vendor offerings carefully to secure the best return on investment as they integrate generative AI into their operations.

[00:01:34] Gartner has unveiled its top strategic predictions for IT organizations and users through 2025 and beyond, highlighting the significant impact of artificial intelligence.

[00:01:45] Gartner predicts that the demand for AI-directed AI-directed AI into their own business.

[00:01:46] By 2026, 20% of organizations are expected to use AI to flatten their structures, potentially eliminating over half of middle management positions.

[00:01:56] Moreover, by 2028, around 70% of companies will implement anti-digital policies in response to digital addiction affecting 1 billion people globally.

[00:02:08] Gartner predicts that by 2029, 10% of global boards will rely on AI insights to challenge executive decisions.

[00:02:16] Additionally, 70% of new employee contracts by 2027 will likely include clauses related to AI representations of their personas.

[00:02:26] By 2028, 15% of daily work decisions will be made by AI systems and organizations using AI governance platforms are expected to see a 40% reduction in ethical incidents.

[00:02:38] Additionally, Gartner forecasts that 50% of enterprises will adopt disinformation security solutions by 2028 and that spatial computing will grow from $110 billion in 2023 to $1.7 trillion by 2033, while hybrid computing is set to emerge next year.

[00:02:57] A new study by the IEEE, the world's largest technical professional organization, reveals that 58% of technology leaders believe artificial intelligence will be the most important technology in 2025.

[00:03:10] The survey also highlighted that 26% see cloud computing and 24% see robotics as significant contenders.

[00:03:17] Furthermore, there is a consensus among 91% of respondents that 2025 will bring a reckoning for generative AI as public understanding and expectations evolve regarding its capabilities.

[00:03:29] Additionally, 35% of surveyed technologists expect quantum computing to be integrated into their operations by 2025.

[00:03:38] Why do we care?

[00:03:39] I included that last one to remind us that some predictions are just wrong.

[00:03:43] 35% think they get quantum?

[00:03:46] What does that even mean?

[00:03:48] Instead, let's focus on the sentiment.

[00:03:51] IT spending has grown and investment in generative AI is significant driving how companies will spend their budgets.

[00:03:58] The goal?

[00:03:59] Drive down costs through less people.

[00:04:01] And AI governance is a key component of that.

[00:04:04] An organization should expect the AI reckoning next year.

[00:04:07] Rushing to deploy AI without the proper governance is a liability, as companies could face increased scrutiny from regulatory bodies and customers alike, especially around privacy, bias, and transparency.

[00:04:20] Don't get sidetracked by lofty predictions.

[00:04:23] Instead, concentrate on scalable practical technology investments that bolster efficiency, improve governance, and retain stakeholder trust.

[00:04:33] A recent Forrester survey of over 250 small and medium-sized businesses worldwide reveals that Microsoft 365 Copilot is proving valuable for organizations that use the right Microsoft 365 SKUs, which costs an additional $30 per user per month.

[00:04:48] The report indicates that early adopters are seeing significant benefits, including a 6% increase in revenue and a 20% decrease in employee attrition.

[00:04:59] Additionally, over half of the respondents reported a potential reduction in supply chain costs by up to 10%, and nearly three-quarters experienced improvements in employee satisfaction.

[00:05:09] A recent Gartner survey reveals that only 48% of digital initiatives across enterprises meet or exceed their business outcome targets.

[00:05:19] The survey, which included responses from over 3,100 CIOs and technology executives, identifies a group known as the Digital Vanguard, where 71% of their digital initiatives succeed.

[00:05:31] These leaders actively co-owned digital delivery with their CIOs and dedicate significant resources to technology projects.

[00:05:41] Gartner's 2025 survey also shows that over 80% of CIOs plan to increase investments in foundational technologies like cybersecurity and AI next year, while 43% aim to reduce spending on legacy systems.

[00:05:53] However, only 60% of CIOs prioritize building a technology workforce beyond IT, potentially hindering digital success across organizations.

[00:06:04] Why do we care?

[00:06:05] I was intrigued to see the Forrester survey showing results with Copilot, where previous reporting of the information has shown organizations struggling to get returns.

[00:06:14] A simple analysis is that we don't have enough insights, or that this is inconsistent.

[00:06:19] I paired that with the Gartner data to highlight a key element.

[00:06:23] Those who actively measure and manage those projects have higher results.

[00:06:27] The Forrester and Gartner data reinforced the idea that the real advantage in digital transformation lies in measurement and active management.

[00:06:36] It's not enough to deploy tech.

[00:06:38] Organizations need clear, data-backed methods to track effectiveness and refine their approach.

[00:06:44] Sure, obvious when you say it, but it's the key value of services organizations.

[00:06:48] You don't just sell a solution, you measure its effectiveness.

[00:06:54] At the Gartner IT Symposium in Orlando, analysts highlighted the ongoing challenges CIOs face with generative AI, noting many are struggling to achieve expected returns on investments.

[00:07:06] According to Gartner's research, nearly half of CIOs report that AI has not met ROI expectations.

[00:07:12] And organizations may miscalculate AI costs by up to 1,000% as they scale their plans.

[00:07:20] In 2023, businesses deploying AI spent between $300,000 to $2.9 million just in the proof-of-concept phase.

[00:07:28] Gartner's research indicates that cost is a significant risk, with experts warning that it's easy to overspend on generative AI initiatives.

[00:07:37] Gartner places generative AI just past the peak of inflated expectations in its hype cycle, indicating a shift toward a more realistic assessment of the technology's capabilities.

[00:07:48] And at the North America Forum 2024, market analyst Jay McBain of Canalys boldly predicted that Intel may cease to exist in its current form,

[00:08:00] potentially due to the spinoff of its foundry business or an acquisition post-US presidential election.

[00:08:06] McBain emphasized that changes in technology, including developments at ARM and a shift towards GPU-led AI, will significantly alter Intel's landscape.

[00:08:16] Canalys also predicted that IT spending across software, hardware and services will grow to $6.3 trillion by 2027, driven primarily by AI.

[00:08:26] Furthermore, it's expected that by 2027, over 95% of distributors will face challenges securing funding to adapt to the AI era, leading to further consolidation.

[00:08:37] Additionally, Canalys forecasts that half of all global edge services revenue will be AI-augmented by 2027, reflecting a significant shift in how businesses operate and leverage technology.

[00:08:50] Why do we care?

[00:08:51] The common theme here is that while AI's potential to transform industries is very real, any organizations are struggling to capitalize on it due to cost miscalculations, skills gaps and unrealistic expectations.

[00:09:04] For IT leaders, the message is clear. Grounded, realistic assessments of AI's capabilities and costs are essential to avoid financial and operational setbacks.

[00:09:14] I'll make a comment here. I wholeheartedly agree with Jay's prediction, and I will challenge some of the coverage I've seen of it as bold.

[00:09:22] Let's not. Intel as an organization isn't delivering results.

[00:09:25] So, of course its current form won't exist. Because that's failing. Call a spade a spade.

[00:09:34] Ingram Micro made a strong return to the New York Stock Exchange, with shares closing approximately 12% higher, giving the IT distribution giant a valuation of $5.82 billion.

[00:09:44] The company, acquired by Platinum Equity in 2021, raised $409.2 million from its initial public offering by selling 18.6 million shares at $22 each.

[00:09:57] The proceeds will help repay part of its $1.16 billion term loan due in 2031.

[00:10:05] Founded in 1979, Ingram Micro previously went public in 1996 and remained listed until its 2021 acquisition.

[00:10:14] IBM's revenue saw a modest increase of just 1%, totaling $15 billion for the first three months ending in September compared to the same period last year.

[00:10:24] This slow growth is primarily attributed to a downturn in its consulting business, which accounts for over a third of its total revenue.

[00:10:32] CFO Jim Cavanaugh pointed to the increasing influence of generative AI software in the tech sector as a key factor prompting customers to reconsider their budgets.

[00:10:41] And a Ramp report highlighted that in Q2, mean accounts payable spending with AI vendors surged by 375% year over year, with companies averaging $181,000 in expenditures.

[00:10:56] Anthropics market share jumped to 17%, showcasing rapid adoption among businesses.

[00:11:02] Meanwhile, research by Marie Breyer explored the challenges of integrating large language models in enterprises, citing that while excitement surrounds LLMs, tangible returns on investments remain elusive.

[00:11:15] Why do we care?

[00:11:17] IT leaders and providers should watch Ingram's post-IPO strategy closely.

[00:11:22] If debt reduction impacts operational flexibility or leads to strategic changes, service providers may need to adjust their distribution partners or diversify to avoid potential disruptions.

[00:11:33] An IBM stagnation underscores the importance of delivering concrete, value-driven AI solutions rather than vague promises of transformation.

[00:11:42] Firms should consider breaking down AI projects into manageable, ROI-focused phases to reaffirm clients of the technology's impact without overcommitting resources.

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