Combined market ACV up 17%, to record $29.2 billion

Market driven by cloud XaaS, up 28%, with managed services up 2%

ISG sees AI continuing to fuel demand; raises 2025 XaaS growth forecast to 21%, maintains managed services forecast at 1.3%

Booming demand for cloud services continues to fuel growth in the global IT and business services market as enterprises look to the cloud to realize their growing AI ambitions, 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 second-quarter ACV for the combined global market (both managed services and cloud-based as-a-service) was up 17 percent versus the prior year, to a record $29.2 billion. That was up slightly from the previous record established in the first quarter of 2025 and represents the seventh consecutive quarter of sequential growth for the combined global market.

“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. “We continue to see strong, year-over-year growth in cloud services as enterprises seek the computing power and scalability of the cloud for their AI initiatives. We’re also seeing steady demand for managed services. Sequential growth for both segments, however, flattened out in the second quarter, owing to lingering caution in the market. Still, the market remains resilient, avoiding the bearish results for managed services we anticipated last quarter, as tariff uncertainty moderated.”

Second-Quarter Results by Segment

The as-a-service (XaaS) segment climbed 28 percent versus the prior year, to a record $18.7 billion, its fourth straight quarter of double-digit, year-on-year growth. Sequentially, XaaS was up 1 percent versus the first quarter.

Within the XaaS segment, infrastructure-as-a-service (IaaS) ACV rose 34 percent, to a record $14.5 billion, and was up 3 percent sequentially from the first quarter, as the Big Three hyperscalers (AWS, Microsoft Azure and Google Cloud) continue to ramp up their infrastructure investments to meet the anticipated acceleration of AI demand. Software-as-a-service (SaaS), meanwhile, rose 9 percent versus the prior year, to $4.1 billion, with growth driven by new AI features, but was down 4 percent from the first quarter, reflecting continuing enterprise caution.

The managed services segment generated second-quarter ACV of $10.6 billion, up 2.3 percent versus the prior year, and flat quarter over quarter. Demand was led by the transportation sector, up 81 percent from the prior year, with the energy, healthcare, retail and manufacturing sectors also producing double-digit growth. The banking, financial services and insurance (BFSI) sector, meanwhile, rose 8 percent, as it began recovering from 2024 lows.

A total of 701 managed services contracts were awarded during the second quarter, down 5 percent from the prior year and down 3 percent sequentially. The number of new-scope awards was up 10 percent, but there was a pullback in smaller awards (those in the $5 million to $10 million range), reflecting pressure on discretionary spending. Among the larger contracts, eight were mega-deals (contracts with ACV of $100 million or more), down from 10 in the prior year, but up from the six contracts signed in the first quarter. The combined ACV of the eight mega deals was up 13 percent year over year.

Within managed services, IT outsourcing (ITO) produced ACV of $7.8 billion, flat with the prior year and down 6 percent from the first quarter. Application development and maintenance (ADM) services and ADM combined with infrastructure services were among the bright spots, advancing 5 percent and 27 percent, respectively, from the prior year.

Business process outsourcing (BPO) ACV, at $1.7 billion, was down 9 percent from the prior year, but up 13 percent from the first quarter. Sequential growth was led by spending on facilities management, HR , finance and accounting, and industry-specific services.

Second-quarter ACV for engineering, research and development (ER&D) services, meanwhile, soared 72 percent year over year, to $1.1 billion, and was up 31 percent from the first quarter.

First-Half Results

In the first half, combined market ACV of $58.3 billion rose 18 percent over the prior year. Managed services, at $21.2 billion, was up 2.8 percent, while XaaS, at $37.1 billion, was up 29 percent year over year. A total of 1,427 managed services contracts were awarded in the first half, down 3 percent from the prior year. Among them were 14 mega-deals, even with the prior-year period, but up 15 percent in total ACV, as companies continue to focus on cost optimization.

Within managed services, ITO rose 8 percent, to $16.1 billion, while BPO slumped 25 percent, to $3.2 billion, versus the prior year. The ER&D segment, meanwhile, advanced 31 percent, to $1.9 billion, on strong demand from the telecommunications, transportation and manufacturing industries. On the cloud side, IaaS soared 34 percent, to $28.6 billion, and SaaS rose 12 percent, to $8.5 billion, compared with the first half of 2024.

Top growth industries for managed services overall in the first half included energy, up 24 percent; manufacturing, up 9 percent; BFSI, up 5 percent, and healthcare, up 4 percent.

2025 Global Forecast

For the full year, ISG is maintaining its forecast of 1.3 percent revenue growth for managed services, reflecting a stabilizing tariff environment but also continued weakness in discretionary spending. At the same time, ISG is raising its previous growth forecast for cloud-based XaaS by 300 basis points, to 21 percent, reflecting continuing strong demand for AI-driven transformation.

Hall commented: “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.”

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 91 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.

The 2Q25 Global ISG Index results were presented during a webcast today. To view a replay of the webcast and download presentation slides, visit this webpage.

About ISG

ISG (Nasdaq: III) 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20250710227200/en/

The demand for AI is proving to be stronger than the impact of macroeconomic and geopolitical uncertainty on the global IT and business services market.