To provide insights into how artificial intelligence and other technological advancements are affecting the energy sector, the team at The Kiplinger Letter, using their deep experience, is keeping people up to date with the latest developments. Here’s the latest forecast:
The AI-Driven IT Spending Boom
Information technology sales are expected to surge in 2025, encompassing everything from hardware and AI software to cloud services, including chips, servers, PCs, and smartphones.
The AI Factor
Big Tech companies have been making massive investments in artificial intelligence, and now, business and consumer spending on AI is accelerating. Global IT spending is projected to increase by roughly 10% in 2025 compared to 2024, reaching $5.6 trillion according to Gartner, a market research firm. A primary driver of this increased spending is the fear of missing out (FOMO) on the potential of AI.
Major tech companies plan substantial AI expenditures this year. Amazon, Microsoft, Alphabet, and Meta will collectively invest $320 billion in capital expenditures, primarily for Nvidia-powered AI servers. Each Nvidia chip costs approximately $30,000 to $40,000. Spending on servers is anticipated to rise by 30% in 2025, a slightly slower pace than in 2024.
Businesses are budgeting for generative AI, focusing on both hardware, like AI-enabled PCs and smartphones, and AI software to enhance productivity and reduce expenses. While expectations for AI’s immediate capabilities have been tempered in recent years, according to John Lovelock, an analyst and chief forecaster at Gartner, many businesses are eager to adopt AI to avoid being left behind.
S&P Global reports that banks, software providers, and retailers are among the leading AI spenders over the next five years. Companies are actively seeking clear, essential AI use cases while discovering business-specific applications that promise returns. Some of the fastest-growing AI applications include claims processing, digital commerce, sales planning, smart factories, and product design. Other popular applications are emerging this year.
Focus on Core Components
Cloud computing remains one of the hottest sectors in the IT market. Gartner forecasts a 24% increase in spending this year on cloud services, which provide computing and data storage capabilities via the internet. Vendors include Amazon, Microsoft, Google, DigitalOcean, IBM Cloud, and Rackspace. Spending on web-based apps and software, is also set to rise by 19%, benefitting vendors of sales software, video editing applications, financial software, work collaboration tools, and more. To cover the cost of their hefty AI investments, many technology vendors are considering raising prices.
Gartner projects a strong 10% increase in spending on devices as AI-enabled PCs and smartphones gain traction. Many businesses are upgrading their PC fleets as top vendors such as Lenovo, HP, Dell, Apple, Asus, and Acer introduce their high-end models.
Additionally, other IT services such as cybersecurity, third-party IT management, and consulting, particularly those related to AI, are expected to have a solid year. Global semiconductor sales are projected to grow by approximately 14% this year compared to 2024, according to Gartner. While this represents a slight decrease from the 19% year-over-year growth in 2024, the outlook remains robust. This year’s chip spending includes a 27% increase in GPUs (graphics processing units), which is good news for Nvidia. Memory sales are expected to jump by 20%. Taiwan Semiconductor Manufacturing Company, the world’s leading chip manufacturer, is also poised to be a major beneficiary.
Potential Challenges and Risks
The potential of U.S. tech tariffs poses the most significant risk to the IT market. Tariffs could potentially hurt spending on gadgets like laptops, gaming consoles, and tablets. The Consumer Technology Association, a prominent tech trade group, predicts that U.S. consumer spending on tech products and services will reach $537 billion in 2025, a 3.2% rise compared to 2024. However, this forecast comes with a warning: U.S. tech tariffs could cause laptop and tablet purchases to fall by as much as 68%, gaming consoles by as much as 58%, and smartphones by up to 37%. Concerns include potential retaliation from trading partners and disruptions to the supply chain, impacting both sellers and consumers.
Since 2016, hardware manufacturers have diversified their supply chains outside of China, which would mitigate the fallout. According to a report from Morgan Stanley, Apple now manufactures 12% of its iPhone production in India and 88% in China. Logitech, the maker of keyboards, webcams, and computer mice, has reduced manufacturing in China to 60%, down from 100% in 2016. Similar reductions in China-based production of PCs and servers have been made by Dell and HP.
Another risk stems from economic downturns, which may lead some companies to scrap their plans to purchase new PCs, memory storage, printers, webcams, and other hardware. Morgan Stanley reports that between 20% and 30% of chief information officers are pausing or downsizing, or cancelling projects related to PCs, servers, video conferencing, and storage, citing economic uncertainty around interest rates, inflation, and employment. However, the report also indicates that three-quarters of CIOs are increasing spending due to artificial intelligence.
Saving on Tech
To save money on IT, businesses can:
- Perform a comprehensive IT audit to identify underused or unused hardware and software, and eliminate “shadow IT.”
- Look for opportunities to consolidate IT services under one vendor, which both streamlines billing and potential cuts costs.
For small businesses aiming to maximize their budget, testing and using the AI tools integrated into existing purchased software, such as Microsoft 365’s new AI features, can be beneficial.
Consumers aiming to save on tech should:
- Watch for deals on PCs in August, September, November, and December, per Consumer Reports’ “Best Time to Buy” calendar. For smartphones, consider slightly older models, refurbished options, and specific lower-cost models, like Apple’s new iPhone 16e.
These are the main forecasts from the team at The Kiplinger Letter, which has been running since 1923. The Kiplinger Letter provides concise weekly forecasts on business and economic trends, as well as insights into what is expected from Washington, to help people understand what’s on the horizon and make the most of their investments.
