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Europe’s technology services market closed 2025 with its strongest quarter on record, driven by surging demand for AI-powered cloud services, managed services recovery, and engineering services, pushing combined ACV to US$10.9 billion in Q4, according to the latest ISG Index™ report.
The EMEA ISG Index™, tracking commercial outsourcing contracts with ACV of US$5 million or more, reported exceptional growth in the fourth quarter of 2025. Combined market ACV (managed services plus cloud-based as-a-service) advanced 27 percent year-on-year to US$10.9 billion, marking the region’s eighth consecutive quarter of growth and the strongest quarterly result of the year.
“Europe saved its best for last, with accelerating, AI-fueled demand for cloud services, coupled with renewed momentum in managed services, leading the region to its strongest quarterly performance of 2025,” said Anthony Drake, president, ISG EMEA. “We also saw surging demand for engineering services relate to AI, and overall deal sizes expanded. While full-year managed services ACV finished roughly flat, the strong Q4 suggests stabilization and improving confidence heading into 2026.”
Managed services ACV rose 19 percent year-on-year to US$4.6 billion and increased 21 percent sequentially. The quarter saw 298 contracts awarded, up 2 percent from the prior year, including three mega deals (ACV of $100 million or more), up from one the previous year. New-scope and restructured contracts both grew in double digits.
Within managed services, IT outsourcing (ITO) grew 12 percent to US$3.1 billion, business process outsourcing (BPO) rose 25 percent to US$1.1 billion, and engineering and research and development (ER&D) services surged 90 percent to US$379 million, reflecting heavy AI-related investments.
Cloud-based as-a-service (XaaS) ACV jumped 34 percent to US$6.3 billion, marking the seventh consecutive quarter of double-digit growth. Infrastructure-as-a-service (IaaS) led the way with 46 percent growth to US$5.0 billion, driven by cloud transformation and AI demand, while software-as-a-service (SaaS) increased 3 percent to US$1.3 billion.
Transportation, retail/consumer products, and healthcare/life sciences posted triple-digit managed services growth in Q4. Larger sectors like banking, financial services and insurance (BFSI) fell 5 percent, manufacturing dropped 42 percent, and telecom declined 30 percent.
Geographically, most markets grew, led by DACH (up 38 percent to US$1 billion) and the Nordics (up 26 percent to US$591 million). The UK rose 2.5 percent to surpass US$1 billion, while France declined 22 percent to US$570 million.
For the full year, combined market ACV increased 17 percent to a record US$38.9 billion—the best growth since 2021. XaaS reached US$22.2 billion, up 37 percent and now representing 57 percent of the total market. Managed services ACV dipped 1.4 percent to US$16.7 billion, with fewer contracts and mega deals.
ISG forecasts moderate 2.1 percent growth for managed services and robust 20 percent growth for XaaS globally in 2026, supported by ongoing cloud migration, AI adoption, cybersecurity needs, and platform-led consumption.
“As we look ahead to 2026, the market enters the year with both opportunity and constraint,” said Steve Hall, chief AI officer and ISG Index lead. “From a macro perspective, enterprises are navigating policy uncertainty around tariffs, a leadership transition at the Federal Reserve and economic headwinds in Europe and Asia Pacific. These factors are not stopping investment, but they are shaping behavior—favoring more deliberate, phased commitments over large, irreversible bets. At the same time, AI is reshaping demand faster than managed services economics are adapting. AI continues to accelerate growth in cloud, infrastructure and platforms, while putting pressure on traditional labor-based pricing and margin structures in managed services.”
These results highlight Europe’s accelerating shift toward AI-driven cloud and services, positioning the region for continued momentum into 2026.
To view a replay of the webcast and download presentation slides from the January 15 presentation of the 4Q25 Global ISG Index results, visit this webpage.
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 93 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, in-depth knowledge of provider ecosystems, and the expertise of its 1,600 professionals worldwide working together to help clients maximize the value of their technology investments.
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