\nSpending 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<\/a>) (Nasdaq: III<\/a>), a global AI-centered technology research and advisory firm.<\/p>\n
\nData from the global ISG Index\u2122, 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\u2014climbing 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.<\/p>\n
\nThe 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\u2014its strongest growth in more than four years\u2014to $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.<\/p>\n
\n\u201cThe AI infrastructure boom is still accelerating,\u201d said Steve Hall, ISG\u2019s chief AI officer and leader of the ISG Index. \u201cThe 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.\u201d<\/p>\n
\nMeanwhile, Hall said the predicted \u201cSaaSpocalypse\u201d has yet to materialize. \u201cThe 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.\u201d<\/p>\n
Managed Services Growth Not Keeping Pace<\/b><\/p>\n
\nWhile spending on traditional managed services continues to grow, the rate of growth is nowhere near that of cloud services.<\/p>\n
\nIn 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.<\/p>\n
\nA total of 722 managed services contracts were awarded during the third quarter\u2014the eleventh straight quarter above 700 contracts\u2014yet 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.<\/p>\n
\n\u201cThe combination of lower award volumes and record ACV suggests enterprises are becoming more selective, concentrating their spending on fewer, larger strategic commitments,\u201d Hall said.<\/p>\n
\nIn 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.<\/p>\n
\nWithin managed services, IT outsourcing (ITO) ACV was essentially flat (up 0.3 percent), at $8.4 billion, with its largest service area\u2014application development and maintenance (ADM)\u2014down 8 percent. ADM continues to struggle, as application development occurs downstream from AI-driven process redesign, an area of greater current focus, ISG noted.<\/p>\n
\nBusiness 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.<\/p>\n
\nACV 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.<\/p>\n
\nCommenting on the managed services market, Hall said: \u201cRight 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.\u201d<\/p>\n
Nine-Month Results<\/b><\/p>\n
\nYear 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.<\/p>\n
\nWithin 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.<\/p>\n
2026 Global Forecast<\/b><\/p>\n
\nFor 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\u2014the first time ISG has broken out IaaS and SaaS in its public forecasts.<\/p>\n
\n\u201cThe IaaS market has become difficult to forecast,\u201d Hall said. \u201cThe 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.\u201d<\/p>\n
\nBroadly speaking, Hall said the market remains very strong, but the growth is \u201cincreasingly concentrated,\u201d with infrastructure still the clear growth engine. \u201cAI is changing the shape of the market, the pace of growth across segments, and the economics underneath it,\u201d he said.<\/p>\n
About the ISG Index\u2122<\/b><\/p>\n
\nThe ISG Index\u2122 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.<\/p>\n
\nThe 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<\/a>.<\/p>\n About ISG<\/b><\/p>\n ISG<\/a> (Nasdaq: III<\/a>) is a global AI-centered technology research and advisory firm. A trusted partner to more than 900 clients, including 75 of the world\u2019s 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.<\/p>\n View source version on businesswire.com: <\/span>https:\/\/www.businesswire.com\/news\/home\/20261008013552\/en\/<\/a><\/span><\/p>\n Press Contacts:<\/p>\n <\/b>Will Thoretz, ISG \nErik Arvidson, Matter Communications for ISG KEYWORDS:<\/b> United States North America Connecticut<\/p>\n INDUSTRY KEYWORDS:<\/b> Software Data Analytics Internet Consulting Artificial Intelligence Data Management Professional Services Technology<\/p>\n<\/p>\n
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+1 203 517 3119
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will.thoretz@isg-one.com<\/a><\/p>\n
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+1 978 518 4542
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isg@matternow.com<\/a><\/p>\n
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