Infrastructure Spending More Than Doubles in Q3 on Growing AI Momentum, ISG Index™ Finds
Combined market ACV up 63%—highest growth rate ever—to record $52.5 billion
Market driven by IaaS, up 115%, with managed services up 2.1%
ISG raises 2026 XaaS growth forecast to 60%, maintains managed services forecast at 2.1%
STAMFORD, Conn.–(BUSINESS WIRE)–
Spending on infrastructure services more than doubled in the third quarter, as AI-driven momentum continues to transform the global technology services market, according to the latest state-of-the industry report from Information Services Group (ISG) (Nasdaq: III), a global AI-centered technology research and advisory firm.
Data from the global ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, show third-quarter ACV for the combined global market (both managed services and cloud-based infrastructure and software services) exceeded $50 billion in a quarter for the first time—climbing 63 percent, to $52.5 billion. It was the highest quarterly growth rate for the combined market ever recorded by ISG, and the ninth consecutive quarter the market grew by double-digits versus the prior year.
The biggest driver of third-quarter growth was AI-fueled demand for infrastructure-as-a-service (IaaS), for which spending skyrocketed an unprecedented 115 percent, to $35.5 billion. The other major cloud area, software-as-service (SaaS), advanced 21 percent—its strongest growth in more than four years—to $5.6 billion. The two areas, taken together, soared 95 percent, to $41.2 billion, and now account for 78.5 percent of global combined market ACV, the highest share ever.
“The AI infrastructure boom is still accelerating,” said Steve Hall, ISG’s chief AI officer and leader of the ISG Index. “The hyperscalers continue to post strong growth and are committing extraordinary levels of capital to new capacity. While supply is growing, this is definitely a demand-driven market. Providers are continuing to build because enterprise demand for compute, storage and AI capacity remains exceptionally strong. The implication is the infrastructure cycle still has room to run. We are not yet seeing a clear peak.”
Meanwhile, Hall said the predicted “SaaSpocalypse” has yet to materialize. “The disruption thesis around SaaS is not playing out in the way the broader markets expected. AI is absolutely changing software economics. But what appears to be happening is that software platforms are becoming one of the primary distribution layers for enterprise AI. The companies that already own workflows, data and user relationships are embedding AI directly into those environments. They will be the winners in this market.”
Managed Services Growth Not Keeping Pace
While spending on traditional managed services continues to grow, the rate of growth is nowhere near that of cloud services.
In the third quarter, managed services ACV rose a comparatively low 2.1 percent, continuing a period of slow and steady growth that has averaged just over 2 percent year over year during the last four quarters. Still, ACV reached $11.3 billion, its highest level ever.
A total of 722 managed services contracts were awarded during the third quarter—the eleventh straight quarter above 700 contracts—yet volume was down 8 percent from a record high last year. Eight of the awards were mega-deals (contracts with ACV of $100 million or more), equal to the prior year, but the ACV of those deals was down 6 percent.
“The combination of lower award volumes and record ACV suggests enterprises are becoming more selective, concentrating their spending on fewer, larger strategic commitments,” Hall said.
In terms of industries, demand was led by consumer packaged goods (up 202 percent) and retail (up 66 percent), although these sectors are among the smallest-spending on managed services. Among larger verticals, manufacturing was up 13.5 percent, to its best ACV quarter in almost two years, while telecommunications slid 19 percent and banking, financial services and insurance (BFSI) fell 20 percent, marking the third time in the last four quarters its results were down versus the prior year.
Within managed services, IT outsourcing (ITO) ACV was essentially flat (up 0.3 percent), at $8.4 billion, with its largest service area—application development and maintenance (ADM)—down 8 percent. ADM continues to struggle, as application development occurs downstream from AI-driven process redesign, an area of greater current focus, ISG noted.
Business process outsourcing (BPO) ACV, at $2.1 billion, rose 12 percent from the prior year, its fourth consecutive quarter of double-digit growth. Strength was seen in industry-specific services, facilities management (reflecting growth in GCCs and data centers) and bundled back-office services, while customer experience services declined.
ACV for engineering, research and development (ER&D) services, meanwhile, fell 3 percent, to $814 million. As with ADM, ER&D is being impacted by AI, especially in areas like software engineering, where integration complexity and legacy technology are slowing AI adoption.
Commenting on the managed services market, Hall said: “Right now, much of the incremental investment is flowing into infrastructure, platforms and software rather than traditional outsourcing and managed-services contracts. That creates a real challenge for service providers. They are participating in the broader AI transformation, but they have not yet captured the same growth economics as the technology providers.”
Nine-Month Results
Year to date, the combined market climbed 45 percent, to $134.1 billion. Managed services, at $33.5 billion, was up 2.7 percent, while as-a-service (XaaS), at $100.6 billion, soared 68 percent over the prior year. A total of 2,188 managed services contracts were awarded year to date, down 1.8 percent, including 21 mega-deals, one less than the prior year, with the ACV of those deals down 8.7 percent.
Within managed services, ITO was down 3.5 percent, to $23.9 billion; BPO rose 35 percent, to $6.9 billion, and ER&D was essentially flat (down 0.7 percent), at $2.6 billion. On the cloud side, IaaS leaped 85 percent, to $85 billion, and SaaS rose 12 percent, to $15.7 billion.
2026 Global Forecast
For the full year, ISG is maintaining its forecast of 2.1 percent growth for managed services. At the same time, ISG is raising its previous growth forecast for cloud-based XaaS to 60 percent, up from 30 percent last quarter. Within this segment, IaaS is expected to grow 80 percent and SaaS is expected to grow 12.5 percent—the first time ISG has broken out IaaS and SaaS in its public forecasts.
“The IaaS market has become difficult to forecast,” Hall said. “The scale of hyperscaler investment, capacity commitments and circular financing across the AI ecosystem is creating more volatility and distortion in the traditional demand signals. So, while we are moving our XaaS forecast up substantially, we think the risk to the IaaS outlook is to the upside.”
Broadly speaking, Hall said the market remains very strong, but the growth is “increasingly concentrated,” with infrastructure still the clear growth engine. “AI is changing the shape of the market, the pace of growth across segments, and the economics underneath it,” he said.
About the ISG Index™
The ISG Index™ is recognized as the authoritative source for marketplace intelligence on the global technology and business services industry. For 96 consecutive quarters, it has detailed the latest industry data and trends for financial analysts, enterprise buyers, software and service providers, law firms, universities and the media.
The 3Q26 Global ISG Index results were presented during a webcast today. To view a replay of the webcast and download presentation slides, visit this webpage.
About ISG
ISG (Nasdaq: III) is a global AI-centered technology research and advisory firm. A trusted partner to more than 900 clients, including 75 of the world’s top 100 enterprises, ISG is a long-time leader in technology and business services that is now at the forefront of leveraging AI to help organizations achieve operational excellence and faster growth. The firm, founded in 2006, is known for its proprietary market data and research, in-depth knowledge and governance of provider ecosystems, and the expertise of its 1,500 professionals worldwide working together to help clients maximize the value of their technology investments.
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