AI Moving From Experimentation to Execution

The FIFA World Cup has captured the attention of soccer—er, football—fans around the world. Possibly the only thing that could generate more excitement right now are the opportunities for efficiency, innovation and growth created by the AI economy.

The initial excitement of the AI hype phase, however, is giving way to a more measured evaluation of this groundbreaking technology as a business enabler. In other words, AI is entering its commercial phase.

AI Confidence

During our 2Q26 ISG Index™ call last week, we unveiled a new AI confidence analysis we conducted as part of our ISG AI Index™, the industry barometer we launched last quarter to track AI’s economic impact on the technology and business services sector. Our analysis of executive commentary found business leaders are now spending more time discussing AI governance, ROI, pricing, execution and measurable business outcomes. Governance and risk-related commentary, for instance, have increased 400 basis points over last year. In short, the discussion has shifted from AI innovation to execution and value creation.

Our ISG Index shows AI infrastructure spending continues to dominate technology investment and drive the overall growth of the global combined market. This last quarter, IaaS spending was up an astounding 78 percent. While enterprise demand remains strong, it’s important to note that a sizeable chunk of IaaS growth is being driven by a relatively small number of frontier AI companies, like OpenAI and Anthropic, that are investing enormous amounts in compute capacity to support their AI models. Hyperscalers, naturally, continue to build new data centers to meet that demand.

AI’s Impact on Managed Services

AI demand isn’t just impacting the cloud computing space; it’s also having an impact on traditional managed services. Enterprises continue to spend on managed services, albeit more slowly than cloud services. What’s changing is where enterprises invest and how providers compete.

Traditional labor-intensive work, particularly in application development and maintenance (ADM) and software-heavy engineering, remains under pressure from AI. At the same time, demand for business process transformation, industry-specific services and larger integrated engagements continue to strengthen. AI is beginning to reshape where enterprises choose to spend their managed services dollars. 

As for the providers, we see them competing now in a much broader ecosystem than only a few years ago. GCCs, internal AI teams, software platforms and automation are all vying for work that would previously have flowed almost exclusively to traditional outsourcing providers. That makes the market more competitive, but it also creates new opportunities for providers that can differentiate themselves through expertise, speed and measurable business outcomes. 

The economics of the managed services market continue to evolve as well. Enterprises are asking providers to reduce long-term operating costs while accelerating business outcomes. This is leading to pricing deflation and changing commercial models, including extended deal durations and increasing amounts of provider-funded transformation embedded within contracts. AI is certainly part of that story, but equally important is the evolution of the commercial model itself. 

One of the more interesting conclusions from our latest ISG AI Index findings is that the market is no longer debating whether AI creates value. Instead, each services sector is now being judged on a different proof point:

• Infrastructure must demonstrate return on unprecedented capital investment. 
• Software must prove long-term monetization. 
• And managed services must demonstrate that AI can fundamentally reinvent the delivery model while maintaining attractive economics.
  

Providers that understand where value is moving—and adapt their business models accordingly—will be the ones that lead the next phase of the AI economy.

New Scope Isn’t Necessarily New

Another trend we’re noticing is the rise in “new scope” contracting for managed services. The 2Q26 ISG Index revealed that nearly 75 percent of the managed services contracts awarded in the second quarter were defined as “new scope,” with the ACV of those awards up 14 percent.

That would seem to imply that the market for managed services is expanding, but here’s what’s actually happening: enterprises are actively reshaping their sourcing portfolios, consolidating providers, expanding scope and repositioning work to align with AI, modernization and cost optimization priorities. Much of this activity appears to reflect work moving between providers and operating models rather than entirely new outsourcing demand. In other words, the market isn't standing still, but it is evolving in a very different way than we've historically seen. 

2026 Global Forecast

With the explosive growth of XaaS in the first half (up 53 percent), and the more muted growth of managed services (up 2.7 percent), we are increasing our XaaS growth forecast for the year by 500 basis points, to 30 percent, and maintaining our growth forecast for managed services at 2.1 percent.

To get a more complete picture of current market dynamics, view the 2Q26 ISG Index call replay, presentation slides and press release on our website. And while you’re there, don’t forget to sign up for our weekly ISG Index Insider briefing and register for our third-quarter 2026 Global ISG Index™ call, set for October 8.