The global market for technology services and software is seeing a fundamental shift in where and how enterprises are investing—and it’s not just because of AI.
Let’s start with the “where.” The Americas has emerged as the undisputed leader in global growth. Our 4Q25 Global ISG Index™, which reports on both fourth-quarter and full-year results, shows the region crossed the $23 billion threshold in managed services spending for the year, up 9 percent, supported by strong ITO activity, a rebound in BFSI, and continued momentum in infrastructure and bundled work. Add in the region’s $42 billion in cloud-based XaaS spending, which was up 35 percent, and it’s clear that this part of the world is the engine that drives global growth. More than half of global tech spending comes from the Americas, and the region accounted for almost 70 percent of global growth in 2025.
That’s not to say other regions don’t contribute to the size of the overall pie. EMEA is showing renewed momentum after a difficult first half, with managed services ACV up 21 percent quarter over quarter in Q4. Engineering services surged, cloud demand accelerated and deal sizes expanded. While full-year managed services spending in EMEA finished roughly flat, the strong Q4 suggests stabilization and improving confidence heading into 2026.
Asia Pacific, meanwhile, experienced sustained pressure. Managed services spending in Q4 was down 36 percent, and for the full year, it was down 27 percent. Even its growth engine, XaaS, has stalled; in the fourth quarter, XaaS spending was down 5 percent.
Now let’s turn to the “how.” In short, deals are getting longer. Deal durations are up 14 percent on average. Every deal size band we track—except for mega awards—saw durations increase in 2025. And with longer deals comes bigger spend. Total contract value increased 8 percent in 2025.
One of the key reasons this is happening is hyper transformation. Enterprises are rethinking their entire technology stack to accommodate the brave new world of AI. They are thinking about AI’s longer-term potential to create new business opportunities and drive growth, of course, but mostly, they’re focused on shorter-term efficiency gains and cost savings. To get to 30 to 50 percent savings, enterprises are changing how work gets done when they outsource. That means transformation—and transformation takes time.
With large-scale transformation now becoming the norm, engineering services emerged this year as a growth driver. ER&D rose 35 percent in 2025, driven primarily by large, integrated, multinational providers, including HCLTech, TCS, Infosys, DXC and Wipro. As a group, these providers captured 51 percent of total ER&D ACV and 44 percent of all ER&D deals during the year. We’re also seeing clear signs that engineering deals are scaling, with average ACV up 23 percent this past year.
EMEA is the biggest spender on ER&D, up 86 percent for the year. By scope, software engineering remained the largest category, accounting for over 40 percent of global ER&D ACV, finishing the year up 17 percent. And that’s not a surprise, as the shift to the autonomous enterprise, powered by AI, is on.
The autonomous enterprise lives in the cloud, and companies are working feverishly to get there. XaaS continues to be the rocket ship that has propelled the entire industry upward. Over the last two years, XaaS spending, driven largely by AI workloads, data platform expansion and enterprise cloud modernization, has grown 49 percent, or some $27 billion of ACV. In 2025, hyperscaler growth accelerated sharply, IaaS delivered another record year, and SaaS demand held up well in platforms tied to infrastructure, analytics, IT service management, and collaboration.
ISG recently completed a study on enterprise IT budgets, highlights of which we presented during our 4Q25 Index webcast. Seventy-seven percent of organizations grew their AI budget to drive new projects. Organizations are willing to spend and experiment, rather than wait on the sidelines. About a quarter of organizations said their spend was focused on accelerating existing programs. Pilots are nearing production and ready to deliver real ROI.
Our forecast for 2026 reflects both the opportunity and constraint the market faces in the coming year. AI is shaping demand faster than managed services can adapt. We expect only modest growth of 2.1 percent in managed services. XaaS is poised for continued growth. Likely companies will spend more on AI than they expect. Taking into account cloud migration, cybersecurity investment and platform-led consumption, we set our forecast at 20 percent.
To get a fuller picture of current market dynamics, view the 4Q25 Global ISG Index™ webcast replay (below), presentation slides and press release on our website.
While you’re there, we invite you to sign up for our weekly ISG Index Insider briefing and register for our first-quarter 2026 ISG Index call, set for April 16.
About the author
Steve Hall
Steve is Chief AI Officer providing strategic insight and advice to help ISG clients in the region solve their most critical business challenges and adopt and optimize the technology and operating models they need to compete successfully.
Steve was named Chief AI Officer in 2024. He leads the firm’s work to help clients create an AI strategy, establish a business case for investment and select the right business partners. His industry-leading expertise in navigating the complexities of adopting technology at scale is helping clients drive value into every aspect of their operations.
Steve joined ISG in 2005 and has led ISG Digital Advisory Services, Emerging Technology Services, Global Product Engineering and Application Development & Maintenance. He is trained as a software engineer and holds a bachelor’s degree in computer science from Regis University.
