.jpg)
Europe’s technology services market hit a record $12.2 billion in Q1 2026, surging 30% year-on-year driven by explosive AI-powered IaaS growth. ISG Index shows strong momentum in cloud infrastructure and managed services.
Demand for technology services across Europe accelerated sharply in the first quarter of 2026, primarily driven by robust requirements for cloud-based infrastructure to support artificial intelligence initiatives. The latest ISG Index report highlights how enterprises are increasingly leveraging AI to transform operations while optimizing costs.
The EMEA ISG Index, which tracks commercial outsourcing contracts with an annual contract value of $5 million or more, recorded a 30 percent increase in combined market ACV (managed services and cloud-based as-a-service) to $12.2 billion in Q1 2026. This represents the highest quarterly figure on record and a 12 percent sequential rise from the previous quarter. Over the past seven quarters, the EMEA combined market has delivered double-digit growth in six periods, averaging 22 percent year-on-year expansion.
The as-a-service (XaaS) segment experienced particularly strong momentum, climbing 52 percent year-on-year to a record $7.5 billion. This marks the eighth consecutive quarter of double-digit growth in the segment. Within XaaS, infrastructure-as-a-service (IaaS) delivered explosive growth of 72 percent to $6.1 billion, registering its fastest quarterly increase in over seven years. Software-as-a-service (SaaS) showed more modest movement, advancing 0.7 percent to $1.4 billion.
Managed services ACV rose nearly 6 percent to $4.7 billion in the first quarter, achieving its second-best quarterly result. A total of 285 managed services contracts were signed, including three mega deals valued at $100 million or more annually. New scope ACV within managed services increased 15 percent to $3.3 billion.
Within managed services, IT outsourcing (ITO) declined 16 percent to $2.9 billion, though bundled infrastructure and application development and maintenance services grew nearly 300 percent. End user computing advanced 60 percent. Business process outsourcing (BPO) delivered exceptional growth of 145 percent to $1.3 billion, with notable gains in HR, facilities management, and industry-specific services.
“Europe has clearly turned the corner, as the region continues to embrace the power of AI to transform business. We’re seeing explosive growth in infrastructure services and steady growth in managed services, as companies focus on cost optimization to fund their AI ambitions. In the first quarter, business process outsourcing was a bright spot, as AI begins to positively impact these services. Overall, the promise of AI is clearly outweighing the impact of geopolitical concerns.”
By industry, managed services ACV rose sharply in telecommunications and retail sectors, while banking, financial services and insurance along with manufacturing experienced declines.
The United Kingdom maintained its position as the largest market, posting $1.2 billion in ACV with 6 percent year-on-year growth. France increased 15 percent to $954 million. Benelux and Southern Europe also recorded gains, while DACH and the Nordics saw contractions.
ISG recently launched its ISG AI Index, which tracks AI’s impact on the technology and business services sector. Initial findings indicate IaaS has experienced the greatest uplift from AI adoption.
ISG has raised its full-year 2026 forecast for XaaS revenue growth to 25 percent, reflecting continued strong demand for AI-related infrastructure, while maintaining its managed services growth projection at 2.1 percent.
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 94 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.
About ISG
ISG 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.
TechIntelPro empowers B2B technology decision-makers with the latest industry trends, deep insights, leadership perspectives and actionable intelligence to drive both organizational and professional milestones—and thrive on the tech pulse.