Gartner says the market for large language model (LLM) providers is on the cusp of an extinction phase as it grapples with the capital-intensive costs of building products in a competitive market.
> Adoption right now is the most important thing: speed, adoption, being in the market – there is extinction coming. The market will not be able to support this number of model providers that we currently have
As the global tech research company forecasts worldwide generative AI (GenAI) spending will reach $644 billion in 2025, up around 76 percent from 2024, John-David Lovelock, Distinguished VP Analyst at Gartner, said the market for model providers would see a similar consolidation to that of the cloud market, which is currently dominated by AWS, Microsoft Azure, and Google Cloud.
"Cloud was more transformational in one sense, \[it\] changed how we did and what we did and where we did it," Lovelock said. "But it was a replacement. I had to change from using my on-premises CRM system to move to a cloud-based system like Salesforce. GenAI comes in and adds to whatever it is you're running, and it will be part of every mobile phone, every PC, every laptop, every server, every piece of software, it will be in your car, your TV, and your watch."
Meanwhile, CIOs are set to opt for commercial-off-the-shelf solutions for more predictable implementation and business value, rather than building their own software around AI, he said.
"Despite model improvements, CIOs will reduce \[proof of concept\] and self-development efforts, focusing instead on GenAI features from existing software providers," said Lovelock.
As a result, LLM developers are currently chasing adoption among users, businesses, and software vendors as a higher priority than revenue or costs.
"Adoption right now is the most important thing: speed, adoption, being in the market – there is extinction coming. The market will not be able to support this number of model providers that we currently have. From the capital expenditure requirements through to revenue, the cloud market only bears three and you expect the same with GenAI model developers," he said.
However, the market was unlikely to see a rapid collapse along the lines of the dotcom crash, partly because that also came on the back of Y2K spending. "We're not going to wake up one morning and find 20 companies out of business. It will be a slower pruning."
AI services are set for the most rapid growth in the market, Gartner said, climbing from $10.6 billion in 2024 to $27.8 billion in 2025, a 163 percent increase. While devices and software-based GenAI were both set to nearly double, the server-based market for GenAI would see the slowest growth at 330 percent to reach $180 billion. ®