Tech execs grapple with budget sinkholes as AI drives up spend

Dive Brief:

• Technology executives are struggling to rein in technology spending as enterprises plan for IT budget increases this year, according to an Apptio report published Monday. The IBM FinOps solution provider surveyed 1,004 IT decision-makers in collaboration with Hanover Research.
• The majority of respondents said they expect technology budgets to grow in the next 12 months to support existing infrastructure and drive innovation. More than half, however, admitted they lack sufficient data to accurately assess their organization’s IT spending.
• Unpredictable cloud bills, outdated software licenses and shadow provisioning create budgetary black holes as departments outside of IT purchase technology services, Apptio said. AI add-ons to enterprise software services and productivity solutions further complicate optimization efforts, according to the report.

Dive Insight:

Budget increases can be a boon for CIOs looking to modernize IT infrastructure and add capabilities, but they don’t always free up spending. Executives anticipate price hikes to consume the lion’s share of the expected increase as the cost of existing services spikes this year, driven in part by the proliferation of generative AI-powered solutions.

“GenAI is like salt on the dinner table — you can sprinkle it on everything,” John-David Lovelock, Gartner distinguished VP analyst, told CIO Dive. “This year, every product will have an offering with generative AI in it.”

Gartner expects tech spend to shoot up nearly 10% globally to more than $5.6 trillion in 2025. While the tech sector doubles down on massive cloud infrastructure investments to power AI, CIOs anticipate continued C-suite pressure to optimize IT spend, according to Apptio.

Half of respondents said their organization will divert capital allocations from other budget areas to fund AI initiatives. Nearly 2 in 5 are counting on cost savings from AI-driven efficiencies to pay for the technology. Only 36% of respondents said their organization has a dedicated AI fund.

AI costs came down significantly last year, according to Accenture. The release of open-source model DeepSeek-R1 earlier this month has fueled hopes of further price reductions, Accenture Senior Managing Director and Global Banking Lead Michael Abbott said.

As enterprise AI spending spreads across the infrastructure, reining in costs will merge with existing optimization practices under the FinOps umbrella. 

After adding software services and data center costs under the FinOps umbrella in 2024, practitioners will take aim at AI overspend this year, according to Jay Litkey, SVP of cloud and FinOps at Flexera and FinOps Foundation governing board member.