Key Takeaways:
- The technology services and software market is driven by cloud momentum and AI-driven investment shifts.
- Cloud and as-a-service offerings are the primary growth engines, with a combined market value surpassing $34 billion in annual contract value.
- Managed services growth is uneven globally, with the Americas leading the way and Asia Pacific experiencing a decline.
- AI is reshaping spending and buying behavior, with 77% of companies planning to increase AI spending in 2026.
- Enterprises are prioritizing high-impact outcomes, signaling opportunities for providers that can align AI innovation with tangible business value.
Introduction to the Market Trends
The latest index from ISG highlights a technology services and software market that is increasingly defined by cloud momentum and AI-driven investment shifts. As the market continues to evolve, it is essential to understand the underlying dynamics that are driving growth and change. The combined market for cloud and as-a-service offerings has surpassed $34 billion in annual contract value for the first time, driven by a record quarter for XaaS, which grew 26% year over year in Q425 and 29% for the full year. This growth is a clear indication that cloud and as-a-service offerings are the primary growth engines in the market.
Cloud and XaaS Growth
Cloud and XaaS continue to power growth in the technology services and software market. Infrastructure-as-a-service stood out, posting 33% annual growth, fueled by hyperscaler demand and AI-driven workloads. SaaS growth remained solid at 16%, but ISG notes signs of deceleration as competition intensifies and AI reshapes pricing and delivery models. The growth of cloud and XaaS is driven by the increasing demand for scalable and flexible technology solutions that can support business growth and innovation. As the market continues to evolve, it is likely that cloud and XaaS will remain the primary growth engines, driving innovation and transformation in the technology services and software market.
Managed Services Face Challenges
In contrast, managed services growth was uneven around the globe. The Americas led the way with close to 10% overall growth in 2025, with Europe being relatively flat and Asia Pacific down by more than 25%. This uneven performance underscores the importance of region-specific strategies for both providers and buyers. ISG also noted that while deal durations and total contract values increased, activity was concentrated in fewer, larger strategic deals. The managed services market is facing challenges, and providers must adapt to the changing needs of buyers and develop region-specific strategies to remain competitive.
The Impact of AI on the Market
AI continues to dominate enterprise investment priorities, with 77% of companies planning to increase AI spending in 2026. Most yearly budgets are flowing to new initiatives rather than incremental pilots, and many AI pilots are now moving into production, reinforcing expectations for measurable ROI. However, ISG also notes that buying behavior is evolving faster than provider pricing and delivery models can adjust, a tension likely to shape the market in the year ahead. The impact of AI on the market is significant, and providers must develop strategies that align with the changing needs of buyers and prioritize high-impact outcomes.
Looking Ahead to 2026
ISG’s outlook suggests modest acceleration in IT budgets in 2026, with spending increasingly directed toward AI adoption, cloud migration, and cybersecurity rather than broad-based cost cutting. Enterprises are prioritizing high-impact outcomes, signaling continued opportunity for providers that can align AI innovation with tangible business value. As the market continues to evolve, it is essential for providers to develop strategies that prioritize high-impact outcomes and align with the changing needs of buyers.
Implications for Clients
For organizations evaluating or renegotiating outsourcing arrangements, the ISG data points to a more selective and outcome-driven approach. Slowing managed services growth and deal concentration signals that buyers are prioritizing fewer, more strategic relationships, often with larger providers that can support AI-enabled transformation at scale. At the same time, enterprises are increasingly supplementing these core providers with niche specialists to access targeted capabilities, particularly in AI, cloud optimization, and industry-specific solutions. Clients should expect continued flexibility in deal structures, with a focus on shorter commitments, modular scopes, and performance-based outcomes rather than traditional long-term, labor-centric contracts.
Conclusion and Future Outlook
As the technology services and software market continues to evolve, it is essential for providers to develop strategies that prioritize high-impact outcomes and align with the changing needs of buyers. The growth of cloud and XaaS, the impact of AI, and the uneven performance of managed services are all key trends that will shape the market in the year ahead. By understanding these trends and developing strategies that prioritize flexibility, adaptability, and high-impact outcomes, providers can position themselves for success in a market that is increasingly defined by cloud momentum and AI-driven investment shifts. As AI continues to reshape delivery models and pricing expectations, outsourcing strategies that balance scale, specialization, and adaptability will be best positioned to deliver sustained value through 2026.