Hello. This is Stanton Jones and Steve Hall with a special preview of the ISG Index Webcast on Thursday, July 9 at 9:00 AM ET. Reserve your spot here.
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What You Need to Know
Growth in managed services was modest in the first quarter of 2026, with enterprises continuing to focus on cost optimization by consolidating providers in large, TCO-focused deals. BPO showed signs of recovery, while ADM and engineering slowed. What didn’t slow were the hyperscalers. The segment added $8 billion of incremental IaaS ACV in the quarter. AI growth was exceptionally strong, but signs began to show that expectations were not meeting reality, and costs were starting to grow out of control.
A lot has changed since Q1. Here’s where we’ll focus on the call:
Are plummeting valuations in the sector justified? There is broad concern that the combination of AI, GCCs and record levels of business uncertainty are reducing the need for tech services. We’ll dig into this thesis – using the ISG AI Index, as well as our bookings data – to provide insight into what we’re seeing on the ground with large enterprises today.
Why have AI costs become board-level concerns? Many enterprises are seeing AI spending skyrocket, right at a time when cost optimization is a top priority. As the AI ecosystem starts to operate with more token-based pricing, and as enterprises grapple with fuzzy ROI and unclear governance, there is concern that the cost profile may become unsustainable. We’ll discuss what we’re seeing with both clients and providers and how both can realize more value from their AI investments.
Is cost reduction still the primary driver in managed services? For many enterprises, yes. However, we’re also seeing an increasing number of clients using providers to accelerate timelines, and providers are increasingly using AI to deliver a higher return through faster value realization. But these projects look very different than managed services deals. We’ll discuss these in more detail on the call.
Is M&A becoming the new path to growth? Given the low single-digit growth environment, providers are looking for growth wherever they can find it. While the high-interest rate environment slowed M&A activity for a while, it has picked up in a big way of late, with several large deals focused on both regional and skill expansion.
We’ll discuss these topics, the health and growth of the sector by industry, region and service line and, of course, unveil our Q2 provider leaderboard as well.
Make sure to reserve your spot on the call here.
Have a great weekend!
About the authors
Stanton Jones
Stanton helps enterprise technology leaders, IT service providers and buy- and sell-side professionals make sense of the global IT services sector. Stanton's weekly briefing - the Index Insider - is read by thousands of industry stakeholders each week.
Steve Hall
Steve Hall is Chief AI Officer, leading the firm’s work to help clients create an AI strategy, select the right business partners and deliver meaningful value and outcomes. His industry-leading expertise in navigating the complexities of adopting technology at scale is helping both clients and ISG leverage AI to 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. Trained as a software engineer, he serves on the Advisory Board of Consortium for Information & Software Quality (CISQ). He holds a bachelor’s degree in computer science from Regis University.
