Worldwide revenues for the artificial intelligence market, including software, hardware and services, is forecast to grow 19.6% year over year in 2022 to $432.8 billion, according to the latest release of International Data Corporation’s Worldwide Semiannual Artificial Intelligence Tracker. The market is expected to break the $500 billion mark in 2023.

“AI has emerged as the next major wave of innovation. AI solutions are currently focused on business process problems and range from human augmentation to process improvement to planning and forecasting, empowering superior decisioning and outcomes. Advancements in language, voice and vision technologies and multi-modal AI solutions are revolutionizing human efficiencies,” Ritu Jyoti, group vice president of worldwide artificial intelligence and automation research at IDC, said. “Overall, AI plus human ingenuity is the differentiator for enterprises to scale and thrive in the era of compressed digital transformation.”

Among the three technology categories, AI software will experience a slight spending decline in 2022, while spending for AI hardware and services will grow more quickly. This trend will continue into 2023. Overall, AI services are forecast to deliver the fastest spending growth over the next five years, with a compound annual growth rate (CAGR) of 22%, while the CAGR for AI hardware will be 20.5%.

In the AI software category, AI applications accounted for 47% of spending in the first half of 2021, followed by AI system infrastructure software with around a 35% share. In terms of growth, AI platforms are expected to perform the best, with a five-year CAGR of 34.6%. The slowest growing segment will be AI system infrastructure software with a five-year CAGR of 14.1%.

Within the AI applications segment, AI ERM is forecast to grow the fastest over the next several years relative to AI CRM and the rest of AI applications. Among all the named software markets published in IDC’s tracker, AI lifecycle software is forecast to experience the fastest growth, with a five-year CAGR of 38.9%.

In the AI services category, AI IT services experienced 20.4% year-over-year growth in the first half of 2021, with worldwide spending reaching $18.4 billion. This growth is forecast to improve to 22% in 2022 and remain there through the end of the forecast period. AI business services are not far behind in terms of growth, with a five-year CAGR of 21.9%. By 2025, IDC expects overall AI services spending to reach $52.6 billion.

“AI remains a key driver of IT investment, which in turn boosts spending on related services to ensure sustainable adoption at scale,” Jennifer Hamel, research manager of analytics and intelligent automation services for IDC, said. “Client demand for expertise in developing production-grade AI solutions drives IT services expansion, while the need to establish the right organization, governance, business process and talent strategies spurs spending on business services.”

Relative to software and services, the AI hardware category grew the most in terms of market share in the first half of 2021, with a jump of 0.5%. It is forecast to reach 5% market share in 2022, with year-over-year growth of 24.9%. AI storage experienced stronger growth relative to AI servers during the first half of 2021. However, this trend will be reversed in 2022, with AI servers expected to experience 26.1% growth compared with 19.7% growth for AI Storage. In terms of spending share, AI servers hold the lion’s share of the category at more than 80%.

“Of all the spending in the various AI market segments, AI hardware is by far the smallest,” Peter Rutten, research vice president of performance intensive computing at IDC, said. “What this should tell organizations is that nickel and diming purpose-built hardware for AI is absolutely counterproductive, especially given the fast-growing compute demand from increasing AI model sizes and complexities.”