Summary

  • ISG measured US$52.5 billion in Q3 annual contract value across qualifying global technology-services contracts, up 63% year over year. Cloud-based XaaS accounted for 78.5% of the combined total.
  • That headline is not a rising tide across the sector: IaaS ACV more than doubled, while managed-services ACV grew 2.1% and its award count fell 8%.

The sharpest fact in ISG’s third-quarter index is not the record US$52.5 billion. It is the distance between the two businesses inside that record. Infrastructure-as-a-service grew 115% to US$35.5 billion of annual contract value. Managed services rose 2.1% to US$11.3 billion. The first number describes a market pulling hard toward cloud capacity; the second describes a much slower business in which providers still sell people, processes and operational responsibility alongside software.

That distinction matters for any company reading the headline as proof that AI is lifting technology services broadly. ISG’s index records annual contract value, or ACV, attached to commercial outsourcing contracts of at least US$5 million. For Q3 it combines managed services with cloud-based infrastructure and software services. The figure measures the value attributed to contracts in the period; it is not the revenue recognized, cash collected or compute consumed during those three months. The index is also not a census of every software sale, smaller technology contract or dollar spent on AI.

A record built from two different markets

Quarter Combined ACV and growth XaaS ACV and growth Managed services ACV and growth
Q4 2025 US$34.3bn; +16% US$23.4bn; +26% US$10.9bn; -0.3%
Q1 2026 US$39.4bn; +29% US$28.2bn; +44% US$11.2bn; +3.0%
Q2 2026 US$42.4bn; +43% US$31.5bn; +65% US$10.9bn; +2.7%
Q3 2026 US$52.5bn; +63% US$41.2bn; +95% US$11.3bn; +2.1%

ACV in US dollars; year-over-year change. Rounded figures reported by ISG.

The previous three releases already showed a widening split. The Q4 2025, Q1 2026 and Q2 2026 comparisons are available in ISG’s quarterly index releases, Q1 report and Q2 report. By Q3, the cloud-based XaaS total reached US$41.2 billion, or 78.5% of combined ACV. IaaS contributed US$35.5 billion; software-as-a-service contributed US$5.6 billion. Those rounded components sum to US$41.1 billion, while ISG reports the segment total as US$41.2 billion.

ISG attributes the infrastructure surge to AI-related demand for compute, storage and capacity. The same release says SaaS grew 21%, its fastest pace in more than four years. But the widening lead is not equivalent to a broad technology-services boom. Managed services remained close to US$11 billion across four quarters even as the combined index climbed. In the first nine months of 2026, managed-services ACV rose 2.7% to US$33.5 billion, against a 68% increase in XaaS to US$100.6 billion.

The service business is changing at a different speed

The award count makes the managed-services result more complicated than its small positive growth rate. ISG counted 722 contracts in Q3, down 8% from the prior-year record. Eight deals had ACV of at least US$100 million, the same number as a year earlier, but the ACV of those mega-deals fell 6%. For the first nine months, contract volume was down 1.8%, and mega-deal ACV was down 8.7%.

A rising total alongside fewer awards can be consistent with larger average contracts, but the published release does not show enough distribution detail to establish which deal bands drove the increase. Nor does it identify which providers won or lost. The safest reading is narrower: the volume of large managed-services awards did not grow with the infrastructure market, and the largest deals did not supply an obvious acceleration.

The sector splits also resist a single “AI boom” label. In managed services, consumer packaged goods ACV rose 202% and retail 66%, but ISG describes both as among the smaller spending sectors. Manufacturing increased 13.5% to its best quarter in almost two years. Telecommunications fell 19%, while banking, financial services and insurance declined 20%, its third down quarter in four. These are managed-services figures, not total technology spending for those industries.

There is a possible explanation in the business model, though not a complete causal account. In its Q2 release, ISG said traditional labor-intensive work was increasingly being displaced by large language models and that providers faced tougher competition, pricing deflation and provider-funded AI transformation inside contracts. Those pressures can change what a services contract contains and how much work is staffed, even while the client buys more infrastructure. They do not prove that AI caused every sector’s result or that managed services are disappearing.

The forecast widens the gap and the uncertainty

ISG raised its 2026 XaaS growth forecast from 30% after Q2 to 60% after Q3, while keeping its managed-services forecast at 2.1%. It expects IaaS to grow 80% and SaaS 12.5%. The forecast says the firm sees a much faster cloud year ahead; it does not convert the Q3 contract measure into revenue guidance for individual providers.

The caveat came from ISG itself. Steve Hall, the Index leader, said IaaS had become difficult to forecast and cited hyperscaler investment, capacity commitments and circular financing across the AI ecosystem as sources of volatility and distortion in traditional demand signals. That statement does not establish that a particular Q3 contract was financed circularly. It does show why the index should be read as evidence of contracting momentum, not as a settled estimate of sustainable end-user demand.

A market can commit to capacity before the eventual workloads, utilization and returns are visible. The index does not disclose contract duration, minimum-use terms, customer identities, unit prices, supplier margins, actual consumption or cancellation rights. It also does not separate AI-driven XaaS from cloud services used for other purposes. Those omissions are not reasons to dismiss the data; they define the questions the data cannot answer.

What would show that the expansion is broadening

The next evidence is not another combined-market record on its own. A broader shift would show up in managed-services award volume and deal-size distribution, in the balance between new scope and renewals, and in whether software and operating services begin to grow closer to infrastructure. Provider disclosures would need to show how contract wins translate into recognized revenue, service margins, capital spending and cash generation. Buyer evidence would need to show workloads moved into production and value returned to the business, rather than capacity merely reserved.

For now, ISG’s data support a more specific conclusion: large buyers are committing more annual contract value to cloud-based infrastructure and software, while the traditional services pool is growing slowly and selectively. The infrastructure cycle is real in the index. Whether it becomes a broad services cycle remains an open question.

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