Revenue from generative AI is likely to increase more than 20-fold over the next three years, with software and internet companies expected to see a positive return on their AI investments as soon as this year, as the expanding functionality of GenAI prompts broader use and triggers a new technology cycle.
After an unprecedented level of investment, GenAI could drive potential revenue of about $1.1 trillion in 2028, up from $45 billion in 2024, according to Morgan Stanley Research.
“Now that we've had GenAI products in the marketplace for more than a year and they've proved their efficacy, the market is going to be ready to start adopting these solutions,” says Keith Weiss, who leads Morgan Stanley’s U.S. Software Research. “That's when revenue starts to flow to the software companies that are trying to automate business processes.”
AI Becomes Mainstream
GenAI caught the general public's attention in November 2022 with the release of ChatGPT, followed by the first raft of commercially targeted products in the fall of 2023. At that point, there was no clarity on whether and when the technology would offer a return. However, as product development and more robust infrastructure have led to mainstream pickup of GenAI products, there’s more visibility on the potential for revenue and profits, Weiss says.
Of the $1.1 trillion revenue opportunity forecast for 2028, $400 billion would come from corporate spending on software focused on productivity improvements from automation. “We took a look at the labor and wage calculations that GenAI can impact,” Weiss says. “And that's where productivity gains come from.”
Consumer platforms, which include ecommerce, search, social media, autonomous and wearables, could generate additional revenue of $680 billion as companies automate their consumer processes, making shopping and devices more efficient.
For 2025, Morgan Stanley Research predicts potential revenue of $153 billion, with enterprise software accounting for $59 billion. Consumer platforms would generate the remaining $94 billion in sales.
In fact, for the first time, return on investment (ROI) is expected to be positive with analysts expecting GenAI to yield a 34% contribution margin, or the equivalent of $51 billion in 2025. Last year, GenAI ROI, with expenses, resulted in a -5% contribution margin.
By 2028, ROI is expected to remain positive and rise to a 67% contribution margin, or $722 billion return.
“That leads us to the conclusion that GenAI’s return profile is not meaningfully different from the gross margins of today's software and Internet solutions,” says Brian Nowak, who leads U.S. Internet Research at Morgan Stanley.
Call Centers Showing Benefits of GenAI
Savings from labor are likely to become a major validation of the efficacy of GenAI in the near term.
Customer call centers are one example: They’ve been significantly reducing the need for the intervention of a human operator with the application of GenAI.
“There’s evidence of savings of real dollars. That's what's going to incite a lot more adoption of GenAI,” Weiss says. “Breakthrough technologies will continue to emerge over the next three years, and they will open up opportunities not just to create efficiencies within existing processes, but to completely rewrite business processes.”
Hardware Spending Keeps Growing
Developing hardware for GenAI innovation has been a bottleneck in this technology cycle. An AI model that is 10% smarter might require five times more hardware, according to Joe Moore, Head of U.S. Semiconductors Research at Morgan Stanley.
“You're looking at a really dramatic increase in the amount of hardware,” says Moore. “Hardware companies are focused on how to deliver that so that it doesn't become prohibitively expensive.”
Moore notes that, despite the recent development of some AI models with smaller amounts of hardware, major companies continue to increase their spending plans.
GenAI Semiconductor spending is forecasted to reach $280 billion in 2028, from $115 billion in 2024, and is well supported by this level of GenAI returns.
Spending on hardware, networking and memory for GenAI is likely to almost triple to $276 billion in 2028, from $98 billion in 2024.
“We've heard from most of the big spenders in the market that they’re continuing to scale up,” Weiss says. “This is not a bubble. This is investment that's driven by these areas of economic benefit that our software and internet teams are seeing.”
