Index Insider: 1Q26 ISG Index Recap | ISG

Hello. This is Stanton Jones and Steve Hall with a special recap of the 1Q 2026 ISG Index call. You can download the slides here, and watch a replay here.

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1Q26 Recap

The industry was up nearly 30% year over year, with exceptionally strong growth in infrastructure-as-a-service annual contract value (ACV). Software-as-a-service results were positive, but growth decelerated for a second consecutive quarter. Large managed services deals focused on cost reduction supported steady results, especially in BPO, but discretionary spending pressure weighed on both applications and engineering growth.

Managed Services Y/Y ACV Results

• Service Lines: ITO down 7%; Engineering flat; BPO up 62%
• Regions: Americas up 1%; EMEA up 6%; Asia Pacific up 2%
• Industries: BFSI down 9%; Consumer up 32%; Manufacturing down 5%

As-a-Service Y/Y ACV Results 

• SaaS: Overall up 5%; top 10 providers down 0.6%
• IaaS: Overall up 57%; big 4 hyperscalers up 75%

2026 Outlook

Enterprises will continue to work through an unprecedented degree of economic uncertainty, especially around energy prices. At the same time, they will accelerate AI programs, working to move beyond pilots and into larger transformation initiatives.

The dual mandates of cost optimization and scaling AI will mean more long-duration, cost-focused deals and continued growth in small, short-cycle projects focused on getting products and services into market faster.

Given this, here’s our forecast:

• Managed services: Holding the forecast at 2.1%. Enterprise focus will remain on cost optimization, while non-AI related discretionary spending will be under pressure.
• As-a-Service: Increasing forecast to 25%. Enterprise demand for AI will continue to drive very strong IaaS results. SaaS backlogs are solid, but uncertainty persists around the impact of AI.