Hello. This is Stanton Jones with a special recap of the third quarter 2026 ISG Index call. You can download the slides here and watch a replay here.
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Market Level Set
The AI infrastructure boom is still accelerating. The hyperscalers are reporting accelerating cloud revenue growth and committing extraordinary amounts of capital to new capacity. Frontier model providers account for a substantial share of AI revenue, but our analysis and on-the-ground experience indicate that enterprise demand for compute, storage and AI capacity remains exceptionally strong. We expect demand to remain strong through the rest of 2026.
AI is reshaping the SaaS market, not killing it. We’ve been writing about the fact that the SaaSpocalypse fears were overstated for a few quarters now, and recent results continue to back that up. Our view is that software platforms are becoming one of the primary distribution layers for enterprise AI. The winners in SaaS will be the platforms that use AI to deepen their control of workflows and enterprise data, not just bolt assistants on to the existing product.
The gap between technology spending and managed services growth is widening. Today, AI investment is primarily flowing into infrastructure, platforms and software rather than services. Providers are using AI, but much of that focus is on using it to improve delivery, which is having a significant deflationary impact on pricing. Given the massive complexity inside most enterprises, and the opportunity to use AI-enabled services to pay down technical debt, we believe the services sector will eventually see tailwinds from AI, but it will take time.
AI investment is accelerating, but the ROI reckoning has begun. Enterprises are becoming more selective and more demanding around AI spending. Boards are asking harder questions about cost, governance and measurable business value. This suggests enterprises are making fewer, bigger bets and focusing capital on initiatives they believe can materially change business outcomes. We showcased this growing disconnect between AI expectations and value in our latest State of Enterprise AI report, which you can download here.
2026 Forecast
Technology demand remains extremely strong, but growth is increasingly concentrated: infrastructure is the primary growth engine, SaaS is improving and managed services remains steady but muted. Given the concentration of growth in the market, we’re breaking out our as-a-service forecast this quarter to provide more detail into these segments.
For IaaS, we’re raising our forecast materially to 80%. IaaS growth continues to accelerate as demand for AI infrastructure and traditional cloud services reinforce each other. We are still seeing an extraordinary degree of hyperscaler investment, and demand continues to run well ahead of what we would consider a normal cloud cycle. The only caution here is that this segment of the market has become difficult to forecast, but we believe forecast risk is to the upside.
For SaaS, we’re holding our forecast at 12.5%. Backlogs are strong, and there is increasing evidence that AI is helping strengthen rather than disrupt the software model.
For managed services, we’re holding our forecast at 2.1%. The segment had another record quarter for ACV, and demand for AI-driven cost optimization remains strong, but the underlying growth is modest. We’re seeing strong performance in EMEA and Asia, while activity in the Americas remains softer. BFSI was down significantly in the quarter. AI-driven productivity is starting to have a more visible effect on pricing.
You can catch a replay of the call here, download the slides from the call here and get a copy of our newly published 2026 State of Enterprise AI report here.
