Global IT spending and investment in artificial intelligence (AI) are bound to surge, and it will eventually fast-track the digital transformation.
Contrary to fears of the market pushing down some IT stocks due to recession in major European and US markets, analysts do not seem overtly worried over IT spending. On the other hand, leveraging technology is seen as a way out of the crisis and fast-tracking digital transformation. European ICT spending will reach $1.1 trillion in 2022 and close to $1.4 trillion by 2026, driven by software investments, according to a forecast by IDC, a telecoms market research firm.
However, the sector that is showing the most significant promise is artificial intelligence. IDC predicts the global market value of artificial intelligence solutions will reach close to $450 billion in 2022. If Indian companies are to ride out the recession in their customer markets, then they must focus on automation and AI-driven solutions.
Indian software services win $150 billion in FY22
Meanwhile, India’s software-related services industry won over $150 billion for the first time in 2021–2022, according to the Reserve Bank of India (RBI). The central bank found that the industry’s revenues rose by 17.2 per cent in the period covered. The United States and Canada were the top destinations for software exports with $86.9 billion, or 55.5 per cent share. Europe racked up $48.6 billion of spending on services delivered from India, with the UK responsible for $23.3 billion of that. Services delivered off-site accounted for $139.2 billion of all spending.
ICT spending to increase in APAC & Europe
IDC’s Worldwide ICT Spending Guide Enterprise and SMB by Industry predicts Asia/Pacific ICT spending to grow by over 3.8 per cent in 2022 and accelerate to a compounded annual growth rate (CAGR) of 5.2 per cent by the end of 2026.
European ICT spending will reach $1.1 trillion in 2022 and close to $1.4 trillion by 2026, driven by software investments, according to IDC. Growing at 5% (CAGR) between 2021–2026, the technology investment will be predominantly driven by spending on software, underpinned by the growth seen in “artificial intelligence platforms, collaborative applications, and software quality and life-cycle tools.” according to the IDC report.
However, the report states the hardware sector, impacted by inflation, an expected recession, as well as the Russia-Ukraine war, will decline 0.1% this year. Most evidently impacted will be spending on devices as Europe is hit with a cost-of-living crisis and product shortage as well as suspended shipments, although, of course, the latter isn’t a European-only issue. In terms of sectors, consumer, banking, and discrete manufacturing are forecast to be the biggest spenders, taking up almost 46% of total ICT spending this year combined, driven by a desire to achieve process automation to minimize disruptions from the crisis.
Technology is a solution to the crisis
European companies are caught in a series of challenges, including skill shortages, supply chain disruptions, post–COVID-19 recovery, high inflation, rising costs of living, and armed conflict in Eastern Europe. Technology has proved to be a solution to many of these challenges as organizations are looking at automation and real-time decision-making to maximize their performance in such challenging times, according to analysts.
With several hardware companies pulling out of Russia, the research firm has also forecast overall ICT spending there will decline by 23% in 2022 while software will remain on a growth trajectory due to “resilience of the technology and the reliance on domestic businesses”.
Indeed, this is a huge sum forecast for Europe, a region in a quandary and a financial squeeze, but a lot of that spending might well go towards the cloud. According to forecasts from earlier in the year by Dell’Oro and Gartner, both telecom and ICT research firms, data centre spending are to increase 61% by 2026, while public cloud is to account for more than half of global enterprise IT spending by 2025.
AI spending to reach $450 billion in 2022
In another report, IDC also predicts the global market value of artificial intelligence solutions will reach close to $450 billion in 2022 and will continue to grow over the next five years. According to IDC’s Worldwide Semiannual Artificial Intelligence Tracker, worldwide revenues for AI software, hardware, and services totalled $383.3 billion in 2021, an increase of 20.7% over 2020.
The largest sector of the overall AI market was AI software in four categories: AI applications delivery and deployment, AI applications, AI system infrastructure software, and AI platforms. These categories combined to reach over $340 billion in market value in 2021, with AI applications accounting for nearly half. AI platforms demonstrated a YoY growth rate of 36.6%.
IDC says the AI applications market remains highly competitive, as almost 300 companies are competing in the space. The most prominent players in the AI applications category were customer relationship management applications (CRM) and AI enterprise resource management applications (ERM), each comprised around 16% of the category total.
AI-centric applications, defined by IDC as applications in which AI technologies are central and critical to their function, captured 12.9% of the 2021 market for a YoY increase of 29.3%. The remainder of the market was held by AI non-centric applications or those where AI technologies are integral to specific workflows of the application. However, the application would still be functional if those technologies were removed.
Cloud AI showing steady growth
Cloud-deployed AI software is showing steady growth, and IDC predicts cloud deployment of newly purchased AI software will surpass on-premises deployments in 2022. Figures show that 47.3% of AI software purchases were deployed to the public cloud, for an increase of four percentage points over 2020 and 8.4 percentage points over 2019.
Another sector showing growth is the AI services market, which showed an increase in the total value of 22.4% YoY. IDC reports that the AI IT services category grew 21.9% YoY to $18.8 billion due to client demand for production-grade AI solutions. Additionally, the increased demand for AI governance, business process, and talent strategy solutions grew the AI business services category at a rate of 24.2% YoY.
The smallest yet fastest growing segment of the AI market is AI hardware. At $18.8 billion with 38.9% YoY growth, IDC says AI hardware growth was driven by efforts to build dedicated AI systems capable of meeting the increased compute and storage demands of AI models and datasets. AI servers and AI storage grew by 39.1% and 32.9%, respectively, and server purchases were at $15.6 billion.
Across all industries and functions, end-user organizations are discovering the benefits of AI technologies, as increasingly powerful AI solutions are enabling better decision-making and higher productivity. The reality is AI offers solutions to everything companies are facing at the moment. AI can be a source for fast-tracking digital transformation journeys, enable cost savings in times of staggering inflation rates and support automation efforts in times of labour shortages.
(Abhijit Roy is a technology explainer and business journalist. He has worked with Strait Times of Singapore, Business Today, Economic Times and The Telegraph. Also worked with PwC, IBM, Wipro, Ericsson.)
(Disclaimer: The views expressed in the article above are those of the author’s and do not necessarily represent or reflect the views of Autofintechs.com. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.)