Artificial Intelligence & Machine Learning

Gen AI Spending Slows as Businesses Exercise Caution

Generative AI has advanced rapidly over the past year, and organizations are recognizing its potential across business functions. But businesses have now taken a cautious stance regarding gen AI adoption due to steep implementation costs and concerns related to hallucinations.

See Also: OnDemand | AI-Driven Endpoint Security: Adapting to Industry Changes

This caution has become evident in the slowing AI spending by enterprises, according to the results of a Lucidworks study comprising more than 2,500 participants from more than 1,000 companies across 14 industries. The study shows that while only 63% of businesses plan to increase AI spending in the next 12 months as opposed to 93% in 2023, the percentage of businesses that plan to keep their AI spending flat has increased from 6% in 2023 to 36% in 2024.

This trend reflects a broader shift away from the AI hype and while businesses acknowledge the potential of this technology, they are also wary of the associated risks and costs, according to Michael Sinoway, CEO of Lucidworks. "The flattened spending suggests a move toward more thoughtful planning. This approach ensures AI adoption delivers real value, balancing competitiveness with cost management and risk mitigation," he said.

The study shows variations in planned spending across industries. Respondents from financial services organizations - 70% - and B2B companies - 68% - said they will increase planned spending over the next 12 months. But leaders from industries such as manufacturing, healthcare and hospitality said that they are being conservative regarding gen AI spending in 2024. Planned spending in manufacturing has reduced to 58% from 93% in 2023, and only 51% of healthcare and 50% of hospitality leaders plan to increase their spending in the coming months.

Deployment Challenges

Organizations face significant challenges in successfully deploying AI initiatives. The study shows that only 25% of planned gen AI investments have been fully implemented. Many projects are unable to progress beyond the pilot or proof-of-concept stage.

In spite of substantial spending, 20% of companies said that there were significant delays during deployment. Only 1 in 8 planned revenue and growth initiatives and 1 in 6 operational expenditure cost reduction initiatives have been successfully implemented. These deployment delays further stalled the anticipated returns on investment, and 42% of companies have not yet seen significant benefits from their gen AI initiatives.

While technology and retail companies have achieved the highest deployment rates of revenue and growth initiatives, most other verticals struggle with delays and a steep learning curve in launching gen AI initiatives.

Businesses must prioritize implementation in real use cases and push past the pilot phase to unlock the technology's true potential, said Guy Sperry, CTO of Lucidworks.

Rising Concerns

Concerns regarding implementation costs, accuracy and data security have increased considerably in 2024. The number of business leaders with concerns related to implementation costs has increased 14-fold and those related to response accuracy have grown fivefold. While concerns about data security have increased only threefold, it remains the biggest worry.

This increase in implementation costs and the concerns associated with hallucinations "paint a new picture of generative AI," said Brian Land, vice president of sales engineering at Lucidworks. "Leaders need to understand requirements around responsiveness, security and data types to choose large language models that meet their needs without incurring unnecessary costs."

The Lucidworks study highlights a shift toward more measured AI investments with variations in spending across different industries. Despite significant interest, deployment challenges persist, and they often stall anticipated ROI. Addressing these concerns will be crucial for businesses that aim to fully leverage gen AI's capabilities.