Predicting global spending on AI software will surge from $124 billion in 2022 to $297 billion in 2027, Gartner forecasts the market will grow at a 19.1% compound annual growth rate in the next six years.
Generative AI (GenAI) software spending is expected to skyrocket from 8% in 2023 to 35% by 2027. GenAI's rapid growth is attributed to enterprise software vendors integrating AI tools into current and future releases, streamlining the widespread adoption of GenAI-based features and new apps.
Gartner predicts the integration of AI tools will be most prevalent in marketing, product design, and customer service, reflecting a shift towards more personalized and efficient operations. The research firm provides an extensive analysis of AI software's growth areas and opportunities in their recently published report, Forecast Analysis: Artificial Intelligence Software, 2023-2027, Worldwide (client access required). The forecast is based on over 500 AI use cases sourced from Gartner's AI use case prisms and related research.
What Driving The AI Market Boom?
Key assumptions that are driving the forecast include the prediction that greater than 70% of independent software vendors (ISVs) will have embedded GenAI capabilities in their enterprise applications by 2026, a major jump from fewer than 1% today.
Thirty-nine percent of worldwide organizations will be in the experimentation phase of Gartner's AI adoption curve by 2025, with 14% being in the expansion phase. Gartner predicts that by 2027, 36% of organizations in the experimentation phase will also start to adopt use cases with high business value but low time-to-financial impact (TOFI). As organizations gain greater maturity with AI experimentation, spending will increase.
"We expect to see ongoing demand for more AI enhancements within software applications and more opportunities for providers to deliver software to build AI. However, do not expect these markets to become saturated (where supply outstrips demand) during the forecast period," Gartner's analysts write in the forecast analysis.
Application areas growing the fastest
Gartner predicts AI spending on financial management system (FMS) components will be the largest application market overall. FMS supports the office of finance with capabilities for forecasting, planning, cash application and collections, balance reconciliation, and others.
FMS vendors are doubling down on AI already to provide proven productivity and optimization support, integrating AI-based features in their apps and platforms. AI's inherent advantages quickly lead to quantified performance and productivity gains with FMS systems, which are table stakes for building a solid business case for potential customers.
Digital commerce applications are the highest-growth AI application market. Digital commerce applications are designed to streamline commerce operations and related areas, including optimization, customer segmentation, image categorization, and others. Gartner defines the AI capabilities in digital commerce to include personalization, automated execution, and content generation.
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Predicting Generative AI's Growth
Gartner is predicting that GenAI will eventually become a cornerstone of all AI software spending, reaching 35% of worldwide revenues by 2027.
The report points to the proliferation of AI copilots being integrated into a wide variety of enterprise systems as a primary catalyst driving this area of the market's growth. Copilot systems are in use today within email systems, customer support chatbots, and a wide variety of marketing applications, with content creation and personalization vendors fast-tracking copilots into their apps and platforms.
One of the many data points that support the optimistic growth forecast for GenAI is Microsoft's success with their Microsoft Dynamics 365 Copilot, launched in March of last year. Since then, more than 130,000 organizations have experienced copilot capabilities in Microsoft Dynamics 365 and Microsoft Power Platform.
Large Language Models (LLMs) core to AI platform market growth
Gartner is predicting that the data science and AI platform market will see the greatest amount of software spending in the forecast period. They've defined the market as including machine learning (ML) platforms and cloud AI developer services. "The data science and AI platforms market is accelerated by the growth of AI and the democratization of technology, where capabilities like ease of use, workflow, collaboration, and deployment provide support for citizen data scientists," writes Gartner's analysts in the report.
The leading AI platforms seeing the greatest growth are natural language technologies (which include LLMs), data science and AI platforms, computer vision platforms, and analytics and BI platforms. LLMs will be the fuel that keeps natural language technology-based platforms growing for the next three years. They're the emerging workhouses of the AI software market.
