IDC: AI spending will reach $342B in 2021

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Companies could spend nearly $342 billion on AI software, hardware, and services in 2021. That’s according to the latest edition of IDC’s Worldwide Semiannual Artificial Intelligence Tracker, which forecast that the AI market will accelerate in 2022, with 18.8% growth, and remain on track to break the $500 billion mark by 2024.

For its report, IDC surveyed over 700 large enterprises across a total of 27 countries and five rest-of regions. While the report suggests the competitive AI landscape remains highly fragmented, 2020 was the year that strengthened the value of enterprise AI, according to IDC’s Ritu Jyoti.

“Disruption is unsettling, but it can also serve as a catalyst for innovation and transformation. We have now entered the domain of AI-augmented work and decision across all the functional areas of a business,” Jyoti, group VP for AI and automation research, said in a statement. “Responsible creation and use of AI solutions that can sense, predict, respond, and adapt at speed is an important business imperative.”

Among AI software, services, and hardware, software — which includes applications such as lifecycle management and enterprise relationship management solutions, platforms, and system infrastructure controls — occupies 88% of the overall AI market, according to IDC. AI lifecycle software is anticipated to grow the fastest within the AI platforms segment, reflecting the increased need for governance, development, and maintenance solutions. However, in terms of expansion, the AI hardware market is expected to grow the fastest in the next several years, while AI services is forecast to become the fastest-growing category from 2023 onward.

Growth in AI services

IDC estimates that the AI services market and its subcategories, IT services and business services, were worth $19.4 billion in 2020, representing the steepest uptick relative to hardware and software. As a case in point, IBM, Accenture, and Tata Consultancy Services notched over $1 billion in revenues in 2020. For 2021, AI services are forecast to grow at 19.3%, according to IDC, reaching a compound annual growth rate (CAGR) of 21% over the next five years.

AI hardware — specifically servers and storage — represents the smallest portion of the larger AI market, with a 5% share, IDC found. Nonetheless, it’s projected to grow the fastest in 2021, at 29.6% year over year — and to hold the best growth spot in 2022. Over the next five years, IDC estimates AI hardware will hit a 19.4% CAGR, with companies like Dell, HPE, Huawei, IBM, Inspur, and Lenovo poised to be the big winners. In 2020, each company generated over $500 million in the AI server market, the IDC report notes.

Other reports agree with IDC’s top-level finding: AI technologies are becoming prevalent in enterprises around the world. While the adoption rate varies between businesses, a majority of them — 95% in a recent S&P Global report — consider AI to be important in their digital transformation efforts. The benefits could be enormous. McKinsey predicts automation alone could raise productivity growth globally by 0.8% to 1.4% annually.

“AI has emerged as an essential component of the future enterprise, fueling demand for services partners to help organizations clear the many hurdles standing between pilot projects and enterprise AI,” Jennifer Hamel, research manager, analytics, and intelligent automation services at IDC, said in a press release. “Client demand for expertise in developing production-grade AI solutions and establishing the right organization, platform, governance, business process, and talent strategies to ensure sustainable AI adoption at scale drives expansion across both IT services and business services segments.”

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