ISG Q3 2025 presentation: XaaS market hits record high as AI reshapes industry

Introduction & Market Context

Information Services Group (NASDAQ:III) presented its Technology Industry Update for Q3 2025 on October 9, highlighting record-breaking performance in the as-a-service (XaaS) market alongside regional variations in managed services. The presentation, delivered by Investment Analyst Sumeet Jain, revealed a technology services landscape increasingly shaped by artificial intelligence adoption and cloud migration.

Despite a challenging day for ISG’s stock, which fell 3.53% to close at $5.67 and continued to decline slightly in premarket trading, the company’s presentation painted a picture of strategic transformation and selective growth across its portfolio.

Quarterly Performance Highlights

The global technology services market reached a significant milestone in Q3 2025, with the combined market surpassing $32 billion for the first time. This achievement was primarily driven by the XaaS segment, which delivered its best quarter ever with 31% year-over-year growth.

As shown in the following chart of global broader market results, the combined market’s annual contract value (ACV) has grown consistently throughout 2025, with managed services showing more modest growth compared to the explosive expansion in as-a-service offerings:

While managed services declined 2% year-over-year in Q3, the as-a-service market continued its strong performance with 29% year-to-date growth, significantly outpacing the 11% growth seen in 2024. This acceleration in XaaS adoption reflects the ongoing digital transformation initiatives across industries.

Regional Performance Analysis

The presentation revealed stark regional contrasts in managed services performance. The Americas region delivered exceptional results, achieving its best quarter ever with 22% year-over-year growth in Q3 and 15% year-to-date growth. This strong performance was particularly evident in the financial services sector, which saw a 30% increase.

In contrast, EMEA experienced a 25% year-over-year decline in Q3 and an 8% year-to-date decrease, while Asia Pacific showed a 9% quarterly decline and a substantial 26% year-to-date drop.

The following chart illustrates these regional disparities in managed services performance:

The Americas’ strength was further demonstrated in both large and small deal activity. The number of small awards in the Americas increased by 15% year-to-date, while mega award ACV grew by an impressive 58%. This balanced growth across deal sizes indicates robust market demand in the region.

Industry Vertical Performance

ISG’s presentation highlighted significant variations in performance across industry verticals. The financial services sector (BFSI) and energy sector showed particular strength, with year-to-date growth of 8% and 23% respectively. However, the retail and consumer packaged goods (CPG) sector faced challenges, declining 18% year-to-date.

The following chart details the performance of selected industry verticals in managed services:

These industry-specific trends reflect broader economic patterns, with financial services and energy companies accelerating their digital transformation initiatives while retail and CPG companies face ongoing market pressures.

Cloud and As-a-Service Growth

The presentation emphasized the remarkable growth in cloud services, with both SaaS and IaaS segments showing strong performance. SaaS results revealed consistent growth across all regions, with year-to-date increases of 13% in the Americas, 22% in EMEA, and 20% in Asia Pacific.

The IaaS segment demonstrated even stronger growth, with a 35% year-over-year increase in Q3 and 33% year-to-date growth. Regional performance was particularly strong in EMEA, which saw a 43% increase, while the Americas grew by 42% and Asia Pacific by 13%.

Key trends in the IaaS market included significant growth among the "Big 3" hyperscalers, increased enterprise demand for digital sovereignty solutions, continued expansion of US data centers, and ongoing growth in cybersecurity services.

AI Impact and Strategic Initiatives

A central theme throughout the presentation was the transformative impact of artificial intelligence across the technology services landscape. ISG highlighted AI’s dual role as both a disruptor of traditional business models and a catalyst for new growth opportunities.

In the BPO sector, which saw a 16% year-over-year decline in Q3 and a 22% year-to-date decrease, AI is actively disrupting traditional revenue streams. The presentation noted a significant shift toward technology-led solutions and specialized skills, with enterprises showing hesitancy to commit to large-scale BPO transformation in this rapidly evolving environment.

The presentation also introduced Autonomy-Level Pricing (ALP) as an innovative approach to pricing transaction-based services in the AI era. This model defines different levels of automation from fully manual execution (AL0) to fully autonomous execution (AL4), providing a framework for fair, variable, and incentive-aligned pricing.

Forward-Looking Statements

ISG maintained its full-year forecast for managed services at 1.3% growth but raised its as-a-service forecast by 400 basis points to 25%, reflecting the accelerating shift toward cloud-based solutions. This aligns with executive commentary from the earnings call, where Steve Hall, Partner and President of ISG EMEA, emphasized that AI has moved beyond the hype cycle to drive fundamental business replatforming.

The presentation also highlighted several factors that could impact future performance, including H-1B visa policy changes that are adding cost and complexity to the industry. These changes may accelerate investments in automation and prompt companies to reassess their mix of onshore, offshore, and nearshore talent.

Despite these challenges, ISG’s overall outlook remains positive, particularly for cloud and AI-enabled services. The company’s strategic focus on these high-growth areas positions it well for continued success in the evolving technology services landscape, even as traditional segments like BPO face disruption.

As the market digests these mixed signals—record-breaking XaaS performance alongside regional variations in managed services—investors will be watching closely to see if ISG can capitalize on the AI and cloud opportunities while navigating the challenges in more traditional service segments.

Full presentation:

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