In a new research released today, Bain & Company revealed that the market for Artificial Intelligence (AI)-related hardware and software is expected to grow between 40 per cent and 55 per cent annually, reaching between US$780 billion and US$990 billion by 2027.

The fifth annual Global Technology Report provides insights on the new waves of growth in the technology sector as a result of disruptions from the fast-changing AI advancements.

According to the report, three areas could enable the AI hardware and software market to come close to a trillion-dollar industry in the next three years: Bigger models and larger data centers, enterprise and sovereign AI initiatives, and software efficiency and capabilities.

As AI scales, the demand for computing power will drive rapid growth in large data centers over the next five to 10 years. Currently, these centers operate at 50–200 megawatts, but AI advancements could push this to over a gigawatt.

The cost of building large data centers, now ranging from US$1 billion to US$4 billion, is expected to soar to US$10 billion to US$25 billion within five years.

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This surge could also lead to a semiconductor shortage. AI’s increasing reliance on GPUs could boost demand for upstream components by over 30 per cent by 2026.

The research highlighted that, if data centres double their need for current-generation GPUs, suppliers of key components will need to increase output, while chip packaging producers will likely need to triple capacity.

Geopolitical tensions may exacerbate this challenge, leading to potential semiconductor supply issues.

The rise of generative AI has also pressured software developers to improve efficiency. Generative AI can cut software engineering time by 10 per cent to 15 per cent, pushing companies to optimise processes and derive greater value from AI integration.

“Generative AI is the prime mover of the current wave of change, but it is complicated by post-globalisation shifts and the need to adapt business processes to deliver value. Companies are moving beyond the experimentation phase and are beginning to scale generative AI across the enterprise,” said David Crawford, chairman of Bain’s Global Technology practice.

He also said that this will impact the role of CIOs in promoting innovation. “As they do, CIOs will need to maintain production-grade AI solutions that will enable companies to adapt to a landscape that is quickly shifting. Essentially, they need to adopt an ‘AI everywhere’ approach.”

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How this will impact tech M&A

The research also explored the topic of tech mergers and acquisitions (M&A). It concluded that tech M&As have become more unpredictable, with companies now focusing on acquiring new capabilities, products, or markets rather than scaling up.

It also revealed that “scope deals” in the tech industry grew from 50 per cent to 80 per cenr between 2015 and 2018, maintaining this level ever since. Scope deals now account for nearly 80 per cent of all tech M&A, a far greater share than in most other sectors.

Despite this, regulatory scrutiny remains high, and there is no indication of a return to large-scale deals soon.

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