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Global technology services and software spending hit a record high in Q4 2025, reaching $34.3 billion in annual contract value (ACV) for contracts of $5 million or more, according to the latest ISG Index™ report from Information Services Group. This 16% year-over-year increase was driven primarily by surging demand for AI-powered cloud and consumption-based services (XaaS), while traditional managed services remained essentially flat.
The Q4 surge underscores AI's central role in reshaping technology spending, with enterprises prioritizing cloud infrastructure to support AI workloads, data expansion, and modernization initiatives. XaaS growth remains robust, though slightly moderated from prior quarters, while managed services face ongoing pressure from AI-driven efficiencies impacting labor-centric models.
Cloud-based services delivered exceptional performance, with IaaS benefiting heavily from the need for scalable compute and storage to power AI applications. SaaS showed steady gains across key categories, reflecting continued enterprise investment in tools that enhance productivity, security, and data insights. Strong demand for AI at the core continues to propel overall market expansion, particularly in infrastructure services.
Managed services showed limited movement in Q4, with declines in traditional ITO offset by double-digit increases in BPO and ER&D. Healthcare and pharma nearly doubled managed services spending, while energy, transportation, and retail also posted strong gains. Deal activity included 727 contracts, with fewer mega-deals but rising new-scope ACV, signaling a focus on transformative, AI-enabled initiatives that require longer durations and higher total contract values.
“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.”
“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.”
The year delivered record combined ACV of $127.4 billion, with XaaS capturing a larger share of the market. Managed services awards totaled 2,954 contracts, including 28 mega-deals, and set records for new-scope awards and ACV, indicating enterprises are pursuing strategic, high-impact transformations.
ISG anticipates continued strong XaaS expansion at 20%, driven by ongoing cloud migrations, AI integration, cybersecurity priorities, and consumption-based models. Managed services are projected to grow modestly at 2.1%, as enterprises navigate policy uncertainties, regional economic softness, and AI's disruptive effects on traditional pricing and margins.
“Overall, 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,” Hall said.
“As we look ahead to 2026, the market enters the year with both opportunity and constraint,” said Hall. “From a macro perspective, enterprises are navigating policy uncertainty around tariffs, continued weakness in Europe, and a leadership transition at the Federal Reserve. 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.”
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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