The global IT and business services market achieved a record-breaking $29.2 billion in annual contract value (ACV) in Q2 2025, driven by surging demand for cloud services to support AI initiatives. According to the ISG Index, enterprises are increasingly leveraging cloud scalability to meet their AI ambitions, despite ongoing economic uncertainties.
Global IT services market hits record $29.2 billion ACV in Q2 2025.
Cloud-based XaaS grows 28%, reaching $18.7 billion, fueled by AI demand.
Managed services rise 2.3% to $10.6 billion, led by transportation sector.
IaaS surges 34% to $14.5 billion; SaaS grows 9% to $4.1 billion.
ISG raises 2025 XaaS growth forecast to 21%, maintains managed services at 1.3%.
Strong AI-driven cloud adoption offsets macroeconomic and geopolitical challenges.
The cloud-based as-a-service (XaaS) segment saw a remarkable 28 percent year-over-year increase, reaching a record $18.7 billion in ACV. This marks the fourth consecutive quarter of double-digit growth, driven by enterprises seeking the computing power and scalability of cloud infrastructure for AI initiatives. Infrastructure-as-a-service (IaaS) led with a 34 percent rise to $14.5 billion, supported by investments from major hyperscalers like AWS, Microsoft Azure, and Google Cloud. Software-as-a-service (SaaS) grew 9 percent to $4.1 billion, boosted by new AI features, though it saw a 4 percent sequential decline due to cautious enterprise spending. “The demand for AI is proving to be stronger than the impact of macroeconomic and geopolitical uncertainty on the global market,” said Steve Hall, president and chief AI officer of ISG.
The managed services segment recorded $10.6 billion in ACV, up 2.3 percent from the prior year, with flat sequential growth. The transportation sector led with an 81 percent increase, followed by double-digit growth in energy, healthcare, retail, and manufacturing. The banking, financial services, and insurance (BFSI) sector grew 8 percent, recovering from 2024 lows. A total of 701 contracts were awarded, down 5 percent year-over-year, with eight mega-deals (ACV of $100 million or more) contributing to a 13 percent increase in mega-deal ACV. IT outsourcing (ITO) remained flat at $7.8 billion, with application development and maintenance (ADM) up 5 percent, while business process outsourcing (BPO) fell 9 percent to $1.7 billion, though it saw sequential growth in facilities management and HR services.
In the first half of 2025, the combined market ACV reached $58.3 billion, up 18 percent from the prior year. XaaS soared 29 percent to $37.1 billion, while managed services grew 2.8 percent to $21.2 billion. The engineering, research, and development (ER&D) segment surged 31 percent to $1.9 billion, driven by demand from telecommunications, transportation, and manufacturing. Key growth industries for managed services included energy (up 24 percent), manufacturing (up 9 percent), BFSI (up 5 percent), and healthcare (up 4 percent). The strong performance reflects enterprises’ focus on cost optimization and AI-driven transformation, despite pressures on discretionary spending.
ISG forecasts a 21 percent growth for XaaS in 2025, up 300 basis points from prior estimates, reflecting sustained AI-driven cloud demand. Managed services growth is expected to remain at 1.3 percent, constrained by cautious discretionary spending. “In terms of our macro outlook, it has improved over the last 90 days, yet business uncertainty remains high. That said, AI has emerged as the dominant theme, overcoming many of these concerns to drive the overall market forward,” said Steve Hall. The resilience of the market, particularly in cloud services, underscores AI’s transformative impact on global IT and business services.
The record $29.2 billion ACV in Q2 2025 highlights the pivotal role of AI-driven cloud demand in propelling the global IT and business services market. With XaaS leading growth and managed services maintaining steady demand, enterprises are prioritizing AI scalability and cost optimization. As AI continues to shape market dynamics, ISG’s raised forecast for XaaS signals a robust outlook for 2025, positioning cloud services as a cornerstone of digital transformation.
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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