Information Services Group: AI Infrastructure Demand Sends Cloud Bookings Soaring

Key Points

• AI infrastructure drove a sharp acceleration in cloud demand: Combined managed-services and as-a-service bookings rose 63% year over year to $52.4 billion, while infrastructure-as-a-service bookings roughly doubled. ISG raised its 2026 IaaS growth forecast to 80% and said it sees no clear peak in the infrastructure cycle.
• SaaS growth rebounded as software platforms became channels for enterprise AI: SaaS bookings increased 21% year over year, although growth among the 10 largest vendors slowed. ISG maintained its 2026 SaaS growth forecast at 12.5%.
• Traditional managed services remained uneven: Managed-services bookings grew just 2.1%, with application development and IT outsourcing particularly weak. Europe and Asia-Pacific outperformed the Americas, while consumer and retail transformation programs and business-process outsourcing showed strong growth.

Information Services Group NASDAQ: III said its third-quarter 2026 market data showed accelerating demand for AI infrastructure and cloud services, while growth in traditional managed services remained modest as enterprises shifted spending toward AI, software platforms and cloud capacity.

The company’s ISG Index, which tracks annual contract value (ACV) as a measure of technology-services bookings, found that the combined managed services and as-a-service market reached $52.4 billion in the third quarter, up 63% year over year. Year-to-date combined-market ACV was up 45% compared with 2025.

“Technology demand remains extremely healthy,” said Steve Hall, ISG’s chief AI officer. “AI is changing the shape of the market and the pace of growth across segments.”

AI Infrastructure Drives As-a-Service Growth

As-a-service ACV reached $41 billion during the quarter, rising 95% year over year and 68% from 2025 levels on a year-to-date basis. Infrastructure-as-a-service, or IaaS, was the primary contributor, with ACV reaching roughly $35.5 billion, up 100% from a year earlier and more than 30% sequentially, according to Hall.

Stanton Jones, distinguished analyst at ISG, said IaaS ACV rose 115% year over year, marking the segment’s strongest quarterly result. Year-to-date IaaS ACV increased more than 85%, while the four largest hyperscalers—AWS, Microsoft, Google and Oracle—grew 98%.

Hall said the demand was not solely tied to frontier AI model developers. He pointed to cloud-provider commentary indicating that enterprise customers are increasingly consuming cloud resources as they move AI workloads into production. Those workloads also require computing, storage, databases, networking and security services, he said.

“AI demand, enterprise cloud migration, and core cloud consumption” are compounding, Hall said, adding that ISG does not yet see a clear peak in the infrastructure cycle. He also cautioned that large capacity commitments and circular financing involving frontier-model companies could make hyperscaler demand more difficult to forecast.

ISG raised its 2026 IaaS growth forecast to 80% and projected overall as-a-service growth of 60%, reflecting the stronger infrastructure outlook.

SaaS Rebounds as AI Becomes a Distribution Channel

ISG reported that software-as-a-service ACV increased 21% year over year in the third quarter, its fastest pace of growth since 2021. SaaS ACV was up 12% year to date compared with 2025.

Jones said AI was reshaping SaaS economics and product design but was not causing the broad disruption some had expected. Instead, software platforms are increasingly becoming a distribution channel for enterprise AI because they control workflows, data and user relationships.

ISG cited year-to-date growth in analytics and business intelligence, customer relationship management, IT service management and human capital management software. However, Jones noted that growth among the 10 largest SaaS vendors had slowed to 6% year to date from 13% at the same point a year earlier.

Hall said larger platforms were beginning to show improved momentum in AI and data offerings, citing ServiceNow, Salesforce, Snowflake, Adobe and Palantir as examples discussed during the call. ISG maintained its 2026 SaaS growth forecast at 12.5%.

Managed Services Growth Remains Uneven

Managed services ACV rose 2.1% in the third quarter, in line with ISG’s prior forecast. The firm maintained its 2026 managed-services growth forecast at 2.1%, citing regional differences, cost pressures, AI-related pricing pressure and continued provider investments in AI capabilities.

Alex Bakker, ISG’s head of primary research, said information technology outsourcing, or ITO, generated $8.4 billion of ACV in the quarter and was essentially flat year over year. Year-to-date ITO ACV declined 3.5%, the segment’s first year-to-date decline since 2019.

Application development and maintenance activity was particularly weak, with awards down 15% from 2025 and ACV down by double digits through the first nine months. Bakker said enterprises need to complete process redesign, data work and legacy-system modernization before AI can generate broader value in application development and engineering.

“The AI value comes from process re-engineering and data analysis and workflow automation, not the standalone use of individual AI tools by individual people,” Bakker said.

Hall said providers were improving revenue per employee through productivity gains, but that benefit was being offset by client demands for lower prices, lower labor intensity and spending on AI platforms and workforce upskilling.

Regional and Industry Results Diverge

Kathy Rudy, ISG’s chief data and analytics officer, said Europe continued to outperform the Americas. European ACV rose nearly 12% in the third quarter and was up 13% year to date, led by strength in manufacturing and demand in the U.K., Ireland and the DACH region.

In contrast, ACV in the Americas declined nearly 6% in the quarter and was down 5.5% year to date. Banking, financial services and insurance, or BFSI, and manufacturing both declined by double digits in the region. Globally, BFSI ACV fell 20% year over year to its lowest quarterly level since 2020, with the Americas accounting for the decline.

Asia-Pacific ACV rose 16% year over year, supported by Southeast Asia and Korea, and was up 12% year to date.

Consumer packaged goods and retail was a notable area of strength, with ACV up more than 100% in the quarter and award activity up more than 60%. Rudy said the sector was seeing larger enterprise-wide transformation programs combining legacy modernization, business-process changes, data preparation and AI readiness.

Business process outsourcing ACV rose 12% year over year and nearly 35% year to date, according to Namratha Dharshan, ISG’s chief business leader for India. She said the market is moving away from labor-arbitrage models toward business-process transformation programs that combine people, processes, technology, analytics, cloud, automation and generative AI.

ISG said enterprise AI discussions are increasingly centered on return on investment, cost, risk, governance and measurable outcomes. Hall characterized the shift as a move “from AI enthusiasm to AI accountability,” as companies place fewer but larger bets on initiatives that can materially affect their operating models.

About Information Services Group (NASDAQ:III)

Information Services Group, Inc NASDAQ: III is a global technology research and advisory firm that helps organizations evaluate, source and manage technology and business services. The company advises clients on digital transformation, cloud computing, artificial intelligence, automation, cybersecurity, data and analytics, and managed services.

ISG provides advisory and consulting services, market intelligence, benchmarking, research and technology-provider evaluations. Its work supports clients with sourcing strategies, vendor selection, contract optimization, governance and the implementation of technology-enabled operating models.

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