AI spending grew 293% last year. Here's how companies are using AI to stay ahead.

🌈 Abstract

The article discusses the significant growth in AI spending by companies, with a 293% year-over-year increase in AI-related card transaction volume. It analyzes how companies are using AI to stay competitive, including:

• Businesses that rely on AI are increasing their usage, with the average business spending $1.5k on AI tools in Q1, a 138% increase year-over-year.
• AI usage is rising the fastest in non-tech sectors like healthcare and financial services, outpacing the tech sector.
• The usage of "narrow" AI tools, which replicate human intelligence for a specific purpose, is increasing.
• AI tools are solidifying their place in the business toolkit, with high customer retention and spending growth.
• Back-office finance tools powered by AI are also gaining traction.
• Businesses are carefully managing their travel spend despite inflationary pressures.

🙋 Q&A

[01] AI Spending Growth

1. What was the year-over-year growth in AI-related card transaction volume? The article states that AI-related card transaction volume increased by an incredible 293% year over year, compared to an increase of just 6% in overall software transaction volume during the same period.

2. How has the number of Ramp customers using AI tools changed over time? Over a third of Ramp customers now pay for at least one AI tool, compared to 21% one year ago. However, the number of Ramp customers choosing to begin investing in AI has leveled off, growing by just 3% this quarter, a stark decline from the peak of 45% growth seen in Q2 2023.

3. Which sectors are seeing the fastest growth in AI adoption? The healthcare and biotech sector saw the largest year-over-year increase in the number of companies transacting with AI vendors (131%), while the tech sector saw the slowest growth (45%). The financial services sector also saw significant growth, with a 331% increase in mean card spend year over year with AI vendors.

[02] AI Tool Usage Trends

1. What types of AI tools are gaining popularity? Narrow AI tools, which replicate human intelligence for a dedicated purpose, are gaining popularity, with four of the top ten vendors by customer count being specialized AI tools.

2. How are AI tools being integrated into businesses? Of the businesses that started transacting with AI vendors 12 months ago, 56% still spend with the same vendors, indicating these tools are becoming a permanent part of the business toolkit. OpenAI has the highest customer retention rate and spending growth among leading AI tools, with 82% of customers that spent on OpenAI a year ago still spending with them today.

3. What other types of tools are businesses adopting alongside AI? The article notes that finance tools, such as tax and payroll tools, have also gained traction, suggesting that companies are increasingly scrutinizing their finance operations and adopting new solutions to automate compliance.

[03] Business Spending Trends

1. How are businesses managing their travel spend? Despite an increase in airline spending, overall travel budgets have stayed steady, as businesses have curbed their spending on discretionary expenses like restaurants, entertainment, and alcohol.

2. What other spending trends are observed across different categories? The article notes that year-over-year spending increased in nearly all top categories, with advertising leading the gains at 40% and airlines at 34%. However, the article also mentions that businesses are taking longer to pay invoices, raising questions about whether they are paying closer attention to cash flow or waiting to pay due to high interest rates.

3. What potential challenges or changes may lie ahead for businesses? The article suggests that in Q2, staying ahead of the competition may mean balancing growth spend with strategic cost-cutting, as the article notes that time will tell if the expected rate cuts from the Federal Reserve will impact corporate spending.