Global spending on generative AI (GenAI) is projected to reach $644 billion in 2025, marking a 76.4% surge from 2024, according to a Gartner report released on Tuesday.

The sharp increase will be primarily driven by the integration of AI capabilities into hardware, including servers, smartphones, and PCs, with nearly 80% of GenAI investments directed toward hardware advancements.

However, Gartner’s Distinguished VP Analyst John-David Lovelock highlighted a paradox within the industry. “Expectations for GenAI are declining due to high failure rates in initial proof-of-concept (POC) trials and dissatisfaction with results,” he noted. Despite these concerns, major AI model providers continue to pour billions into enhancing model performance, size, and reliability—a trend expected to continue through 2025 and 2026.

The report suggests that GenAI will significantly influence IT spending across various markets, with AI-enabled devices becoming the norm. By 2028, almost all consumer devices are expected to incorporate AI features, though Lovelock noted that consumers are not actively demanding these capabilities. Instead, manufacturers are embedding AI as a standard, making its adoption inevitable.

Additionally, enterprises will reassess their GenAI strategies in 2025, moving away from ambitious internal projects. CIOs are expected to shift focus from in-house POC developments to ready-made GenAI solutions from existing software providers to ensure predictable implementation and business value.

Gartner’s spending forecast is based on extensive analysis of sales data from over a thousand vendors across the full spectrum of GenAI products and services.