AI Demand Sparks Q1 Double-Digit Growth in Asia Pacific’s Technology Services Market, ISG Index™ Finds

Combined market up 16%, driven by 18% increase in XaaS demand

Managed services rebounds, up 2%, to break 4-quarter losing streak

SYDNEY--(BUSINESS WIRE)--Spending on technology services in Asia Pacific grew by double digits in the first quarter, powered by AI-driven demand for cloud infrastructure services, while managed services saw modest growth, the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq: III), a global AI-centered technology research and advisory firm, found.

The Asia Pacific ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows ACV for the combined market—both managed services and as-a-service (XaaS)—rose 16 percent versus the prior year, to US $7.1 billion. It was only the third quarter of double-digit growth the region has produced in the last two years. Versus the fourth quarter of 2025, the market was up 15 percent.

XaaS spending climbed 18 percent, to a record US $6.3 billion, the segment’s fastest growth in two years. With interest in AI continuing to rise, demand for infrastructure-as-a-service (IaaS) advanced 19 percent, to a record US $5.6 billion, while software-as-a-service (SaaS) increased 15 percent, to a record US $675 million. Asia Pacific’s XaaS spending has grown at a slower pace than the Americas or EMEA, averaging 13.5 percent a quarter over the last 18 months.

Managed services ACV, meanwhile, rose 1.9 percent, to US $791 million, breaking a four-quarter losing streak during which time this segment averaged a 23 percent quarterly decline over the prior year. Against the fourth quarter of 2025, ACV was down 8 percent. Within this segment, IT outsourcing (ITO) slumped 32 percent, to US $409 million. Business process outsourcing (BPO) fell by 14 percent, to US $133 million, while engineering services rose to US $249 million, up from US $22 million in the prior year.

A total of 61 managed services contracts was awarded in the first quarter, up 7 percent year on year, but down 6 percent against the prior quarter. The number of smaller deals, those between US $5 million and US $9 million, rose 19 percent versus the prior year.

“Asia Pacific continues to be a cloud-first market, with digital transformation and AI fueling demand for infrastructure and software services,” said Michael Gale, partner and regional leader, ISG Asia Pacific. “Managed services rebounded this quarter but still has not returned to the $1 billion run-rate that we saw several times in 2024.”

Results by Industry, Geography

Several of the region’s smaller industries increased their managed services spending significantly in the first quarter, including transportation, healthcare and business services, which were all up more than 100 percent. Among the larger verticals, banking, financial services and insurance (BFSI) rose 4 percent while manufacturing was flat and telecommunications was down significantly, off 60 percent from the prior year.

By geography, the smaller managed services markets of Southeast Asia, China and Korea were each up by triple digits versus the prior year. However, the larger markets weighed on overall results, with India down 9 percent, Australia-New Zealand down 33 percent and Japan down 54 percent.

New ISG AI Index™ Launched

ISG last week announced the launch of its ISG AI Index™, a first-of-its-kind benchmark that measures how AI is impacting the global technology and business services sector. The initial findings were presented during the ISG Index call last Thursday. They show that infrastructure-as-a-service (IaaS) has seen the greatest impact from AI, up 160 percent. Software as-a-service (SaaS) has risen 53 percent while managed services is up only slightly, at 0.3 percent. On a market-weighted basis, the composite ISG AI Index was up 77 percent since inception, dating to December 2022, just after the launch of ChatGPT 3.0 and the start of the current AI era. Visit this webpage for more details.

2026 Global Forecast

ISG said it is raising its full-year forecast for XaaS revenue growth to 25 percent, up 400 basis points from its January forecast, and is holding its managed services growth forecast at 2.1 percent for the year. The forecasts reflect ISG’s view that XaaS growth will continue to accelerate on strong demand for AI, while managed services growth will remain “steady” as enterprises focus on cost takeout to fund their AI initiatives.

About the ISG Index™

The ISG Index™ is recognized as the authoritative source for marketplace intelligence on the global technology and business services industry. For 94 consecutive quarters, it has detailed the latest industry data and trends for financial analysts, enterprise buyers, software and service providers, law firms, universities and the media.

The 1Q26 Global ISG Index results were presented during a webcast last week. To view a replay of the webcast and download presentation slides, visit this webpage.

About ISG

ISG (Nasdaq: III) is a global AI-centered technology research and advisory firm. A trusted partner to more than 900 clients, including 75 of the world’s top 100 enterprises, ISG is a long-time leader in technology and business services that is now at the forefront of leveraging AI to help organizations achieve operational excellence and faster growth. The firm, founded in 2006, is known for its proprietary market data and research, in-depth knowledge and governance of provider ecosystems, and the expertise of its 1,500 professionals worldwide working together to help clients maximize the value of their technology investments.