ISG: Global Technology Demand Reaches Record High in Q4, Fueled by AI

Global spending on technology services and software reached a record high in the fourth quarter, as demand for AI continued to propel the market upward, according to a recent report from Information Services Group (ISG), a Stamford, Connecticut-based technology research and advisory firm.

Data from the ISG Index, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, show fourth-quarter ACV for the combined global market (both managed services and cloud-based services) at a record $34.3 billion, up 16 percent versus the prior year. It was the sixth consecutive quarter the combined market posted double-digit growth year over year, averaging nearly 18 percent growth in that span.

The pace of growth, however, has decelerated somewhat over the last four quarters, slowing from 21 percent year-over-year growth in the fourth quarter last year.

All the growth in this year’s fourth quarter came from record spending on cloud-based software and services (XaaS), according to the report. The XaaS market had its best quarter ever, generating $23.4 billion of ACV, up 26 percent from the prior year, but down slightly from the 30 percent growth rate XaaS recorded in the third quarter. Within this segment, infrastructure-as-a-service (IaaS) soared 32 percent, to $18.5 billion, while software-as-a-service (SaaS) grew 6 percent, to $4.9 billion.

“Spending on cloud, software and consumption-based services continues to drive the overall market, with strong demand for AI at its core,” said Steve Hall, the firm’s chief AI officer. “Growth is particularly strong in infrastructure services, fueled by AI workloads, data platform expansion and enterprise cloud modernization. SaaS also delivered a solid performance in 2025, with growth across collaboration, IT service management, analytics and cybersecurity.”

The managed services market, meanwhile, was essentially flat in the fourth quarter, generating $10.9 billion of ACV, down 0.3 percent from the prior year. During the fourth quarter, 727 managed services contracts were awarded, down 2.5 percent from the prior year.

“While managed services growth was constrained in 2025, there are positive signals that bode well for the longer term,” Hall said. “Deal durations are up 14 percent while TCV (total contract value) is up 8 percent for the full year, as enterprises focus on hyper transformation aimed at delivering cost savings and greater efficiency through AI. Such broadscale transformation takes time.”

Combined market ACV for the full year was a record $127.4 billion, up 18 percent from the prior year, the highest annual growth rate since 2021. The ACV of cloud-based services reached a record $84.0 billion, up 29 percent, with IaaS up 33 percent, to $64.7 billion, and SaaS up 16 percent, to $19.3 billion. XaaS now accounts for 66 percent of combined-market ACV, up from 60 percent in 2024.

Managed services ACV grew 1.3 percent, its slowest growth rate since 2020, to a record $43.4 billion. Demand slowed from the average 5 percent growth of the previous three years. ITO was up 2.4 percent, at $32.5 billion, and ER&D advanced 35 percent, to $3.6 billion, while BPO slumped 14 percent, to $7.3 billion.

A total of 2,954 managed services contracts were awarded in 2025, up slightly (0.5 percent) from the prior year. Among them were 28 mega-deals, down from 32 in 2024. Meanwhile, the number of new-scope awards (2,058) was up 6 percent and new-scope ACV ($29 billion) was up 7.5 percent from the prior year, each at record highs.

For the full year of 2026, ISG is forecasting 2.1 percent revenue growth for managed services, and 20 percent revenue growth for cloud-based software and services (XaaS), the latter supported by continuing cloud migration, AI adoption, cybersecurity investment and platform-led consumption.

Channel Impact^®
The report shows that 2025 was a solid year for the outsourcing market. Growth was concentrated in cloud, infrastructure, engineering and AI-related demand, while more traditional, labor-centric services remained under pressure.