GenAI Is A 'Tax' For Software Companies: Gartner

"Revenue gains from the sale of GenAI add-ons ... flow back to their AI model provider partner"

In its latest Q2 quarterly spending forecast published on Tuesday, analyst Gartner says that generative AI is like a "tax" on software companies. They have to spend on AI to keep up with expectations but returns so far are flowing elsewhere.

"Generative AI is being felt across all technology segments and subsegments, but not to everyone's benefit," said John-David Lovelock, distinguished VP analyst at Gartner.

"Some software spending increases are attributable to GenAI, but to a software company, GenAI most closely resembles a tax. Revenue gains from the sale of GenAI add-ons or tokens flow back to their AI model provider partner."

GenAI makes itself felt elsewhere too, particularly in the data center, where Garner predicts spending will increase by a massive 24 percent in 2024, to $293 billion. In contrast, growth in data center spending in 2023 was just 4 percent.

The financial impact of incorporating GenAI into software products is offset somewhat by a predicted spending increase of 12.6 percent. In fact, predicted global IT spend is up across the board. Even the devices category, which saw expenditure fall last year, is expected to see an expansion of 5.4 percent.

However, Gartner trimmed its previous forecast for growth in the IT services sector from 9.7 percent in its previous (Q1) quarterly forecast to 7.1 percent in its latest report. This is due to lower-than-expected spending on consulting and business process services.

Gartner blames "change fatigue" among CIOs for this outcome but predicts the services sector will pick up by the end of the year.

Overall, the analyst firm expects worldwide IT spending to grow by 7.5 percent from 2023's level, to $5.26 trillion in 2024. This is a slight decrease from the 8 percent growth it predicted last quarter.

This article originally appeared on our sister site, Computing.