The EMEA ISG Index shows fourth-quarter annual contract value (ACV) for the combined market advanced 27% to a record US$10.9 billion. This was the region’s eighth consecutive quarter of combined market growth, ISG said, averaging 16% in that span.

Notably, managed services ACV for the fourth quarter rose 19% year-on-year to $4.6 billion and was up 21% from the third quarter of 2025.

“Europe saved its best for last, with accelerating, AI-fuelled demand for cloud services, coupled with renewed momentum in managed services, leading the region to its strongest quarterly performance of 2025,” said Anthony Drake, president at ISG EMEA.

“We also saw surging demand for engineering services relate to AI and overall deal sizes expanded. While full-year managed services ACV finished roughly flat, the strong Q4 suggests stabilisation and improving confidence heading into 2026.”

ISG noted that most industries increased their managed services spending in Q4, with essential sectors like transportation, retail and healthcare/life sciences rising the most. However, the region’s typically largest sectors all underperformed, including banking, financial services and insurance (BFSI), which was down 5%, manufacturing down 42% and telecom down 30%.

Additionally, Infrastructure-as-a-Service (IaaS) spending surged 46%, to $5 billion on strong cloud transformation and AI demand. Software-as-a-service (SaaS), meanwhile, grew by 3%, to $1.3 billion.

Notably, ISG found that the XaaS (Anything as a Service) market grew 37% and now accounts for 57% of the region’s combined ACV, up from 49% in 2024. Likewise, within this segment, IaaS (Infrastructure as a Service) increased by 43% to $16.8 billion, which has been fuelled by cloud and AI demand. SaaS (Software as a Service) rose 19% to $5.4 billion.

ISG said its 2026 global forecast predicts 2.1% revenue growth for managed services and 20% revenue growth for cloud-based software and services supported by continued cloud migration, AI adoption, cybersecurity investment and platform-led consumption.

This news comes amid a backdrop of significant digital transformation across the EMEA region. Throughout 2025, businesses accelerated their technology initiatives – as countries look to bring in regulations like the EU AI Act and adopt digital sovereignty measures – to modernise their infrastructure and adopt more sophisticated AI and cloud architectures.

Enterprises ultimately still see a real opportunity for innovation and investment across EMEA. Competition continues to heat up, particularly among hyperscalers in Europe that are all ramping up infrastructure in response to customer demand and stricter regulatory expectations.

“As we look ahead to 2026, the market enters the year with both opportunity and constraint,” said Steve Hall, chief AI officer and ISG Index lead. “From a macro perspective, enterprises are navigating policy uncertainty around tariffs, a leadership transition at the Federal Reserve and economic headwinds in Europe and Asia Pacific. These factors are not stopping investment, but they are shaping behaviour – favouring more deliberate, phased commitments over large, irreversible bets.”

He added: “At the same time, AI is reshaping demand faster than managed services economics are adapting. AI continues to accelerate growth in cloud, infrastructure and platforms, while putting pressure on traditional labour-based pricing and margin structures in managed services.”

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