ISG Index

Accelerating interest in AI continues to drive the global market for technology services and software, propelling spending to an all-time high in the third quarter, according to the latest state-of-the industry report from Information Services Group (ISG) (Nasdaq: III), a global AI-centered technology research and advisory firm.

Data from the global ISG Index, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, show third-quarter ACV for the combined global market (both managed services and cloud-based as-a-service) was up 18 percent versus the prior year, to a record $32.7 billion. It was the fifth straight quarter the global combined market has advanced by double-digits versus the prior year.

“We continue to see enterprise spend shifting toward cloud-first platforms, led by infrastructure-as-a-service tied to AI adoption,” said Steve Hall, president and chief AI officer of ISG. “This isn’t hype—it’s a fundamental re-platforming of enterprise technology.”

Hall said AI is disrupting demand for managed services, particularly business process outsourcing (BPO). “The growth in AI is coming at the expense of traditional BPO volumes. The model is shifting fast. Spend is moving to AI-infused, data-driven platforms.”

The change in H1-B visa policy will also impact the industry, Hall said. “The new $100,000 visa fee introduced in September is reshaping how firms think about labor-based delivery. It raises the cost for offshore resources and will likely accelerate moves toward automation, local hiring and more diversified talent models.”

Third-Quarter Results by Segment

The as-a-service (XaaS) segment climbed 31 percent versus the prior year, to a record $21.6 billion, its fifth straight quarter of double-digit, year-on-year growth. Sequentially, XaaS was up 11 percent versus the second quarter.

Within the XaaS segment, infrastructure-as-a-service (IaaS) ACV soared 35 percent, to a record $16.8 billion, and was up 13 percent sequentially from the second quarter. Collectively, the big three hyperscalers—AWS, Azure and Google Cloud—saw topline growth of 41 percent in the third quarter.

Software-as-a-service (SaaS), meanwhile, rose 18 percent versus the prior year, to $4.8 billion, and was up 4 percent from Q2, with growth across IT service management, collaboration and analytics.

The global managed services segment, at $11.1 billion, turned in a sluggish quarter, down 2 percent versus a record-high third quarter last year, despite 22 percent growth in the Americas. Global growth was led by the healthcare and pharmaceutical industry, up 37 percent, with the energy, media and telecom, and banking, financial services and insurance (BFSI) sectors also growing by double digits.