Significant rises in IT costs have CIOs carefully threading the needle on innovation
Many CIOs anticipate significant price increases for cloud and other IT products and services in 2025, prompting those with stagnant budgets to make tough decisions regarding IT expenditures.
A Gartner survey conducted at the end of 2024 reveals that CIOs expect an average cost increase of 8.9% for IT products and services. These price hikes, coupled with ongoing investments in AI, are contributing to a projected 9.8% rise in global IT spending.
Previously, Gartner had forecasted an 8.2% increase in worldwide IT spending for 2025. The firm now estimates that IT spending will reach $5.62 trillion this year, up from $5.11 trillion in 2024.
AI developed in anticipation of demand
AI is being integrated into IT products and services ahead of market demand. While some price increases may accompany feature enhancements or expanded functionality, customers will also face higher costs for existing offerings.
Many IT vendors are incorporating AI capabilities into their products and charging more for these additions, regardless of customer demand. In the near future, it is expected that purchasing a PC, tablet, laptop, or mobile phone without AI will be nearly impossible, as these features will be marketed alongside the products.
Additionally, AI is being added to software solutions, often with increased costs for these enhanced functionalities. IT consulting services are also expanding their portfolios to include AI-based offerings.
Cloud costs are climbing
Cloud prices are expected to rise significantly, contrary to previous expectations that they would remain stable or decrease. For many years, it was believed that cloud pricing would either decline or offer more functionality, thanks to economies of scale benefiting cloud providers. However, this narrative shifted in the post-COVID era, fueled by the energy crisis and rising labor costs.
Experts agree that cloud prices are likely to increase this year. This doesn’t necessarily indicate that most enterprises are expanding their cloud storage needs; rather, organizations are paying more for essentially the same storage as in the previous year.
Some organizations are adopting a multicloud approach, which provides additional IT resources even as cloud service costs rise. Additionally, there is growing demand for cloud-based GPUs used in AI model training. Enterprises are investing more in expensive GPU configurations and requiring more operational hours with these resources, leading to increased spending beyond mere price hikes.
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Investing in AI Despite Falling Expectations
In addition to rising prices, AI spending is expected to drive increases in worldwide IT spending, even as generative AI enters a phase of disillusionment. While expectations around generative AI are declining, many organizations continue to increase their investments in AI projects and hardware.
The perception of generative AI is shifting from a one-size-fits-all solution to a more pragmatic approach focused on productivity and quality improvements. IT leaders are becoming more realistic about their AI goals, recognizing the need for responsible and targeted use.
Although many anticipate the projected increases in IT spending, price hikes are also significant drivers. Vendors are raising prices, compelling companies to sharpen their budgets. IT spending is no longer solely about innovation; it also involves managing rising costs and maintaining the status quo.
To address these price increases, some organizations are scaling back ambitious IT expansion plans and focusing on streamlining current services. Many are reevaluating "nice to have" items in favor of "must haves," as everything from cloud services to hardware prices continues to rise.
Some organizations are increasing IT spending now to reduce long-term costs through automation, cloud migration, and energy-efficient systems. However, the cost of AI hardware and expertise, along with rising cloud and SaaS renewals, is also contributing to higher expenditures.
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