Smart city artificial intelligence (AI) revenue will reach $6.5bn by 2032, according to a report from Guidehouse.

Market barriers though include municipal procurement practices, privacy and cyber-security concerns.

The report analyses the market for AI and predictive analytics platforms for transportation, energy management and environmental quality in the urban environment.

AI offers a path to meaningful use of the growing amounts of municipal data. Cities are facing increasing environmental problems from climate change at the same time more government funding has become available.

The recent passage of infrastructure and climate investment programmes in key markets such as the USA and Europe will further boost the AI market space.

According to the report, annual smart city AI sales revenue will grow from $693.3m in 2023 to $6.5bn by 2032, representing a compound annual growth rate (CAGR) of 28.2%.

“In the coming decade, as climate challenges increase, deployment of data colleting IoT devices expands, and cities become familiar with the outcomes that can be achieved through AI systems, the market is expected to grow substantially,” said Grant Samms, research analyst with Guidehouse Insights. “AI’s ability to process large amounts of data from diverse sources makes it a useful tool in addressing difficult, sticky problems, which have many interacting factors that may be difficult to detect manually.”

AI can be a key tool in solving problems that would otherwise be difficult or impossible to address. To date, smart cities have used AI for sustainability mostly in three segments – transportation, energy management and environmental quality.

The largest barriers to AI adoption are municipal procurement practices, which are not designed to accommodate many AI companies’ pricing models, and concerns from residents about how cities will protect their privacy and how they will manage these new technologies’ IT and cyber-security demands, according to the report.

The report, AI for Sustainable Cities, finds that the AI market should experience large growth in the coming decade as climate difficulties increase, deployment of IoT devices grows, and cities become familiar with the outcomes that AI systems can achieve.

The recent passage of infrastructure and climate investment programmes in the USA and Europe will further boost the AI market.