Feature
Nearly every year since 1956 — when the term artificial intelligence was coined — has been called “the year of artificial intelligence” by someone, and this year is no exception. But while we’ve had our fun generating content with multimodal generative AI, in 2025, it’s time for AI to get down to work.
AI Hits a Reality Check: What’s Next?
Several investment and analyst firms predict some shakeout in AI. In particular, AI vendors are investing in hardware intended to support their AI systems but aren’t seeing revenues to match, according to a report from Deloitte.
“Companies are spending tens of billions of dollars on chips and further hundreds of billions to build gen AI data centers for training and inference of gen AI models,” Deloitte noted. “While some companies offering gen AI enterprise software are seeing incremental revenues, the investment is 10 times (or more) higher than the return, at least for now. Those spending the most might suggest that the risk of underinvesting in gen AI is higher than the risk of overinvesting. But the gap persists and seems to be widening.”
David Cahn, a partner at the venture capital firm Sequoia Capital — which lists more than 100 AI companies in its portfolio — added that, in one of his firm’s reports, research shows the gap between investment and revenue is widening. In fact, he predicted that the amount of revenue required for payback tripled in the previous year.
Some investors believe in the transformative power of generative AI, while others are skeptical that companies can generate attractive returns on their high AI investment, David Kostin, chief US equity strategist at Goldman Sachs, commented in a post by the firm.
That said, Goldman Sachs expects the growing investment in data centers and hardware equipment supporting AI technology will continue to provide a boost to capital expenditures growth next year.
“Investment in data centers and hardware equipment soared in 2023 following the launch of ChatGPT,” the company noted. “Since then, it has continued to grow at a strong pace, reaching $45 billion in 2024Q3. Looking ahead, we expect investment in data centers and hardware equipment to grow at a healthy but slightly slower pace next year.”
Related Article: Cultivating a Culture of Innovation in the GenAI Era
The Rise of Decision-Making Agents
The next great hope for AI revenue? Agentic AI, systems that can make decisions, adapt to changes in their environment and execute tasks without continuous human oversight. In fact, Gartner named AI-powered agents as the number one technology trend for 2025.
These agents “don’t require explicit inputs and don’t produce predetermined outputs,” Tom Coshow, senior director analyst in the technical service providers division at Gartner, said in a post. “Instead, they can receive instructions, create a plan and use tooling to complete tasks and produce dynamic outputs.”
The result, according to McKinsey & Company, is agents that use generative AI to perform more complex tasks. “When agentic systems are built using foundation models rather than predefined rules, they have the potential to adapt to different scenarios in the same way that LLMs can respond intelligibly to prompts on which they have not been explicitly trained,” the consulting firm noted.
Forrester agrees agentic AI is important, but is more pessimistic. “They’re not ready yet,” the company included in a recent report. “Expect another two years before they have any chance of meeting inflated automation hopes. The challenge is that these architectures are convoluted, requiring multiple models, advanced retrieval-augmented generation (RAG) stacks, advanced data architectures and specialized expertise.
Aligning these models for focused outcomes, added the firm, is an unresolved issue that will disappoint eager developers. They predict that 75% of enterprises that attempt to build these agents themselves in 2025 will fail. Instead, they’ll turn to consultancies to build custom agent setups or use agents embedded in existing software ecosystems.
AI That Delivers Real Results
Agents are the most widespread example of what’s expected to be an increasing focus on using AI to help solve business problems.
In particular, Goldman Sachs analysts said they expect investor interest in AI to transition from AI infrastructure to a broader AI "phase 3" of application rollout and monetization. This phase refers to companies, including software and services firms, that are likely to see AI-enabled revenues beyond those that build the infrastructure underlying AI, Kostin claimed.
The result will be more emphasis on using AI as a tool, according to Snowflake. In the retail industry, for example, retailers and brands weren’t always as intentional as they could have been — many threw AI at the wall to see what would stick, Prabhath Nanisetty, global head of industry, retail data and technology at Snowflake, said in the company’s report.
Disappointment around the ROI of generative AI is a data strategy problem, not an AI problem, Nanisetty claimed, adding that as retailers improve their data foundations and align AI strategy with growth levers, frustration should ease. Companies, he continued, should take into account the people and processes involved, including upskilling employees and removing unwarranted barriers to data accessibility.
Related Article: Leveraging Agentic AI: A New Playbook for Corporate Innovation
The Great AI Consolidation
The increasing specialization and verticalization of the AI industry will likely bring a wave of consolidation in 2025, which will include mergers and acquisitions (M&A) and, in some cases, closings,” said Danny Brown, partner at MaC Venture Capital.
“Companies that fail to capture their specific mission and market will be eclipsed by leaders who’ve built a better model or gotten there first. The leaders across each industry, whether in health care, sustainability or finance, will become prime acquisition targets for both large tech firms and industry-specific players.”
AI is driving significant mergers and acquisitions activity in the US tech sector, Tejas Dessai, director of research for investment company Global X, wrote in a blog post. “This momentum is expected to continue into 2025 as companies across the tech landscape, from hardware to software, look to capitalize on the rapidly evolving AI space. The new U.S. administration is also expected to remain friendly to M&A.”
Companies that own distribution channels, data and proprietary relationships in niche markets are especially becoming attractive acquisition targets, he added. “With tech valuations leveling off and the need for AI solutions intensifying, cloud computing, in particular, could see a surge in deal-making activity in the year ahead.”
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However, corporate marriages won’t all have happy endings.
“FOMO and falling interest rates will spur consolidation as traditional companies gobble up AI startups who start to run out of cash,” said Phil Lim, director of product management at Diligent. “This will be a massive culture clash, and very few organizations will come out ahead, but those that do will win big.”
On the whole, vendors and some investors are still optimistic about the future of AI.
