Soaring Investments in AI-Powered Smartphones: $298 Billion Spent Globally

AI-Powered Smartphones Set to Capture $298 Billion in Consumer Spending as Mobile Computing Enters New Era

The smartphone industry is witnessing a fundamental shift as artificial intelligence transforms from a marketing buzzword into a core hardware requirement. Consumer spending on generative AI-enabled smartphones is projected to reach $298.2 billion in 2025, representing 20% of total consumer spending on mobile devices, according to Gartner research. This surge reflects not just technological advancement, but a broader transformation in how consumers interact with their devices—moving from passive tools to proactive digital companions.

The Neural Processing Revolution

Gartner defines AI-enhanced smartphones as devices equipped with integrated neural engines or Neural Processing Units (NPUs) capable of running small language models locally. This on-device processing capability represents a significant departure from cloud-dependent AI services, offering faster response times and enhanced privacy protection.

The research encompasses premium and standard smartphones (priced below $350) but excludes basic functional phones unlikely to incorporate neural processing capabilities. This segmentation highlights how AI is becoming a differentiating factor across price tiers, not just premium devices.

Market Dynamics and Consumer Behavior Shift

"Most users still rely on text or touch to perform tasks, and voice communication remains limited in scope," noted Ranjit Atwal, Senior Research Director at Gartner. "However, as conversational AI adoption increases, users are expected to become more receptive to AI as a proactive digital companion rather than just an interactive tool."

This behavioral shift mirrors similar transitions in computing history—from command-line interfaces to graphical user interfaces, and from desktop to mobile-first interactions. The move toward AI companions suggests we're entering the next phase of human-computer interaction.

Explosive Growth Trajectory

The momentum is accelerating rapidly. Consumer spending on AI-enhanced smartphones is projected to reach $393.3 billion in 2026, marking a 32% increase from 2025 levels. This growth rate significantly outpaces traditional smartphone upgrade cycles, suggesting AI capabilities are creating genuine consumer demand rather than incremental improvements.

By 2029, Gartner predicts 100% of premium smartphones will feature generative AI capabilities. This timeline aligns with similar technology adoption curves seen in previous smartphone innovations like cameras, biometric security, and wireless charging.

Hardware Requirements Drive Upgrade Cycles

The expansion of neural processing units in smartphones will enable AI models to operate with greater speed and efficiency, compelling users to upgrade to newer models to keep pace with enhanced experiences. This creates a compelling upgrade narrative for manufacturers facing saturated smartphone markets.

In 2025, all premium AI-enhanced smartphones are expected to include NPUs, while 41% of standard AI-enhanced smartphones will feature these processing units. This penetration across price segments suggests AI processing is becoming as fundamental as cameras or connectivity.

Performance Benchmarks Signal Industry Standards

Gartner anticipates that NPU performance exceeding 40 trillion operations per second (TOPS) will become standard in all premium AI-enhanced devices by 2027. This processing power will enable real-time execution of complex, multimedia AI workloads without additional energy consumption—a crucial factor for battery-dependent mobile devices.

Investment and Market Implications

For investors and industry stakeholders, this trend represents both opportunity and disruption. Semiconductor companies specializing in AI chips, software developers creating on-device AI applications, and smartphone manufacturers with early AI integration stand to benefit significantly.

However, companies slow to adopt AI capabilities risk obsolescence in premium segments. The data suggests AI enhancement is transitioning from optional feature to market requirement, similar to how touchscreens became mandatory after the iPhone's introduction.

The nearly $300 billion spending projection for 2025 also indicates consumers are willing to pay premiums for meaningful AI capabilities, validating the industry's significant R&D investments in neural processing and on-device AI technologies.