Americas’ IT and Business Services Sector Grows by Double Digits in Q1, Despite Growing Uncertainty: ISG Index™

Rhea-AI Summary

Information Services Group (ISG) reports strong growth in Americas' IT and business services sector for Q1, with combined market ACV reaching $14.5 billion, up 19% year-over-year. The growth was primarily driven by cloud-based XaaS services, which surged 33% to reach $9.2 billion.

Managed services segment showed slight pressure, declining 0.4% to $5.3 billion. Notable industry gains were seen in financial services (+12%), consumer package goods (+47%), and media/telecoms (+31%). IT outsourcing rose 5% to $3.8 billion, while Business Processing Outsourcing fell 39% to $803 million.

ISG presents two forecasts for 2025: A base scenario with 18% XaaS growth and 1.3% managed services growth, and a more bearish scenario with 15% XaaS growth and -2.4% managed services growth, considering potential impacts from trade policies and geopolitical tensions.

Positive

• Combined market ACV up 19% YoY to $14.5 billion
• XaaS segment reached record $9.2 billion, up 33%
• IaaS services soared 44% to $6.6 billion
• IT outsourcing grew 5% to $3.8 billion
• Engineering, research and development services up 81% to $687 million

Negative

• Managed services segment declined 0.4% YoY
• Business Processing Outsourcing fell 39% to $803 million
• Smaller deals ($5-9M) down 5% YoY
• Defensive industries (energy, healthcare, retail) showed negative growth
• Reduced forecast for managed services growth from 4.5% to 1.3% in base scenario

Insights

Technology Research Analyst

ISG's Q1 report shows a 19% year-over-year growth in the Americas IT services market to $14.5 billion, driven primarily by exceptional 33% growth in cloud-based services (XaaS). This represents the fourth consecutive quarter of double-digit XaaS growth, signaling strong underlying demand for cloud transformation and AI initiatives.

The managed services segment shows concerning weakness, declining 0.4% year-over-year and 8% sequentially. Particularly worrying is the 5% drop in smaller deals ($5-9 million range) – the third such decline in four quarters – suggesting mounting pressure on discretionary IT spending despite overall market growth.

ISG has significantly downgraded its 2025 managed services forecast to just 1.3% growth (from 4.5% previously), while maintaining its XaaS projection at 18%. Their alternative scenario, accounting for prolonged tariff uncertainty, projects managed services declining by 2.4% – a dramatic 690 basis point reduction from January's outlook.

This bifurcation between robust cloud services demand and weakening traditional IT outsourcing reflects an acceleration of market shifts that ultimately favors ISG's research and advisory capabilities as companies navigate complex transformation decisions amid economic uncertainty. However, the company's cautious language and substantial forecast revisions suggest internal concerns about conversion rates and sales cycles extending through 2025.

Financial Analyst

ISG's Q1 market report presents a mixed outlook that warrants investor attention. While the headline 19% market growth appears strong, the company's revenue streams are more closely tied to transaction volumes and advisory services around managed services contracts, which showed concerning weakness (down 0.4% YoY and 8% QoQ).

The dramatic downward revision to ISG's managed services forecast – now just 1.3% growth versus previous 4.5% – signals significant near-term headwinds. Their bearish scenario projecting -2.4% decline represents a substantial recalibration of market expectations. The repeated decline in smaller deals (-5%) is particularly relevant as these transactions form the backbone of consistent advisory work.

While cloud services growth remains robust at 33%, ISG benefits indirectly from this segment through research subscriptions rather than transaction fees. The company's cautious language about "delayed commitment" rather than "declining demand" suggests pipeline conversion challenges that could impact quarterly performance.

Industry segment data shows defensive sectors (healthcare, energy, retail) moving to negative territory – traditionally stable revenue sources now under pressure. Financial services grew 12%, providing some counterbalance. The outlook depends heavily on trade policy developments and discretionary IT spending trends through mid-2025, making ISG's performance particularly susceptible to macroeconomic conditions in coming quarters.

Combined market up 19%, driven by 33 percent growth in XaaS ACV

Managed services down slightly, showing signs of pressure on discretionary spending

STAMFORD, Conn.--(BUSINESS WIRE)-- Demand for IT and business services in the Americas rose by double digits in the first quarter, despite growing economic uncertainty, according to the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq: III), a global AI-centered technology research and advisory firm.

The Americas ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, shows first-quarter ACV for the combined market—including both managed services and cloud-based as-a-service (XaaS)—was $14.5 billion, up 19 percent from a year ago. Versus the fourth quarter of 2024, the combined market was down slightly (0.2 percent).

“The Americas market was driven by strong cloud and AI demand, as companies continued their digital transformations in Q1 despite economic uncertainty and the prospect of U.S. tariffs,” said Todd Lavieri, vice chairman and president of ISG Americas and Asia Pacific. “Enterprises remain focused on cost resiliency, productivity and IT modernization. The managed services segment, however, showed some weakness, with smaller deals down 5 percent in the quarter versus the prior year. This could be a sign that discretionary spending is under pressure.”

Lavieri said ISG expects increased volatility in the months ahead. “The introduction of sweeping tariffs and the potential for retaliatory measures by U.S. trading partners have raised the level of uncertainty. Companies are likely to remain cautious in the near term, even after the U.S. administration’s decision last week to pause most additional tariffs for 90 days.”

Q1 Results by Segment

The managed services segment generated first-quarter ACV of $5.3 billion, down 0.4 percent from the prior year and down 8 percent from the prior quarter.

A total of 377 managed services contracts were signed in the first quarter, down 1.8 percent versus a year ago, but up 4.1 percent versus the fourth quarter. Among them were three mega deals (contracts with ACV of $100 million or more), up from two in the first quarter of 2024, but down sharply from the eight mega-deals signed in Q4. Meanwhile, the number of smaller deals—those valued at between $5 million and $9 million—declined 5 percent versus the prior year, marking the third time in the last four quarters this segment has seen year-over-year declines.

By industry, gainers included financial services (up 12 percent), consumer package goods (up 47 percent) and media/telecoms (up 31 percent). Defensive industries such as energy, healthcare and retail all fell back into negative territory for the quarter.

Within managed services, IT outsourcing (ITO) ACV rose 5 percent, to $3.8 billion, driven by strong growth in data center services and more moderate growth in application development and maintenance (ADM) services. Business processing outsourcing (BPO) ACV, meanwhile, fell 39 percent, to $803 million, with customer engagement the only area showing growth against a difficult prior-year comparison. Engineering, research and development (ER&D) services, broken out from BPO for the first time this quarter, was up 81 percent, to $687 million.

ACV for XaaS was up 33 percent, to $9.2 billion, the first time it surpassed the $9-billion mark in a quarter. It was the fourth straight quarter that XaaS has generated double-digit growth versus the prior year, although growth decelerated by 280 basis points from the fourth quarter.

Within this segment ACV for infrastructure-as-a-service (IaaS) soared 44 percent versus the prior year, to $6.6 billion, while software-as-a-service (SaaS) advanced 12 percent, at $2.6 billion.

2025 Global Forecast

Heightened uncertainty from trade policy, geopolitical tensions and evolving regulations are beginning to weigh on the industry’s second-quarter outlook, ISG said.

ISG’s forecasts for market growth in 2025 are based on two scenarios. In the first scenario, the tariff environment stabilizes by midyear, and the market sees faster decision-making in the second half. Under that scenario, ISG forecasts XaaS growth of 18 percent for 2025, unchanged from its January forecast. ISG’s forecast for managed services growth would be 1.3 percent, down from its January forecast of 4.5 percent.

In the second scenario, tariffs would extend through the third quarter or beyond, compounded by immigration enforcement, prevailing wage issues or retaliatory digital services taxes in the EU, resulting in a longer pullback in discretionary demand and delays in award conversion. In this more bearish case, ISG forecasts XaaS growth for the year would moderate to 15 percent, while managed services spending would be negative 2.4 percent, a nearly 700 basis-point swing from its January forecast.

“We remain cautious in our base case, but not pessimistic,” said Lavieri. “The signals from Q1 are fundamentally strong. The shift we’re seeing is not one of declining demand, but one of delayed commitment.”

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 90 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 1Q25 Global ISG Index results were presented on April 10. 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, in-depth knowledge of provider ecosystems, and the expertise of its 1,600 professionals worldwide working together to help clients maximize the value of their technology investments.

View source version on businesswire.com: https://www.businesswire.com/news/home/20250415967351/en/

Will Thoretz, ISG

+1 203 517 3119

will.thoretz@isg-one.com



Julianna Sheridan, Matter Communications for ISG

+1 978-518-4520

isg@matternow.com

Source: Information Services Group, Inc.

FAQ

What was ISG's (III) combined market ACV growth in Q1 2025?

ISG reported a 19% year-over-year growth in combined market ACV, reaching $14.5 billion in Q1 2025.

How did XaaS perform in ISG's (III) Q1 2025 report?

XaaS ACV grew 33% to $9.2 billion, marking its first time surpassing $9 billion in a quarter, with IaaS up 44% to $6.6 billion.

Which industries showed growth in ISG's (III) Q1 2025 managed services segment?

Financial services (+12%), consumer package goods (+47%), and media/telecoms (+31%) showed significant growth.

What are ISG's (III) growth forecasts for 2025?

ISG forecasts 18% XaaS growth and 1.3% managed services growth in the base scenario, or 15% XaaS growth and -2.4% managed services growth in the bearish scenario.