Key Takeaways:
AI adoption drove Asia Pacific technology services spending to its fastest quarterly growth in nearly five years, with the combined market reaching a record $7.6 billion.
Asia Pacific spending on technology services accelerated sharply in the second quarter, with AI adoption propelling the region to its fastest growth in nearly five years, according to the latest state-of-the-industry report from Information Services Group.
"We are clearly seeing renewed momentum in the Asia Pacific market," said Michael Gale, partner and regional leader at ISG Asia Pacific. "Cloud demand continues to accelerate, as enterprises seek infrastructure services to support AI adoption, while managed services is showing resilience, producing its first US $1 billion ACV quarter in a year and a half."
The combined market, which includes both cloud-based as-a-service and managed services, climbed 50.5% to a record $7.6 billion in annual contract value, the ISG Index showed. It was the region's best quarterly growth rate since the fourth quarter of 2021 and the second consecutive quarter of positive results. Cloud-based XaaS spending soared 57% to $6.6 billion, the segment's highest growth rate in almost five years, while managed services advanced 18% to just over $1 billion.
The surge underscores a structural shift in how Asia Pacific enterprises allocate technology budgets. Infrastructure-as-a-service ACV jumped 59% to $5.8 billion, reflecting the hyperscaler capacity buildout needed to run AI models, while software-as-a-service rose 49% to $818 million. The spending wave is not uniform across the region — Southeast Asia posted triple-digit growth, China climbed nearly 100%, Japan rose 21% and Australia and New Zealand, the region's largest market, broke a five-quarter losing streak with 12% growth. India, however, fell 45%.
Managed services show resilience as AI reshapes IT outsourcing
Within managed services, IT outsourcing ACV climbed 46% to $810 million on strong demand for application development and maintenance services and bundled infrastructure. Business process outsourcing edged 3% lower to $129 million, with growth in industry-specific services failing to offset weakness in customer engagement. Engineering, research and development services slumped 53% to $85.5 million as AI began displacing demand for traditional software engineering.
By industry, retail and consumer packaged goods each posted triple-digit growth, while business services and healthcare and pharmaceuticals each rose more than 50%. Banking, financial services and insurance, the region's largest outsourcing vertical, grew just 3%, and manufacturing pulled back 7%.
For the first half, Asia Pacific's combined market ACV rose 29% to $14.3 billion, with XaaS climbing 32% to $12.5 billion, representing 87% of the total. Managed services rose 10% to $1.8 billion.
Globally, ISG maintained its full-year managed services revenue growth forecast at 2.1% but raised its XaaS forecast by 500 basis points to 30%, reflecting continuing strong demand for AI infrastructure and software services. The Americas combined market hit a record $21.8 billion in the second quarter, up 39%, with IaaS surging 86% to $13.2 billion — a sign that the AI infrastructure buildout is accelerating across both regions.
For investors, the data points to sustained capital deployment into cloud infrastructure providers such as Amazon Web Services, Microsoft Azure and Google Cloud, which are racing to expand Asia Pacific capacity. The shift also threatens traditional IT services firms reliant on application development and maintenance revenue, as enterprises redirect spending toward AI-native solutions. ISG's revised global XaaS forecast of 30% growth implies hundreds of billions in additional cloud spending through year-end, with Asia Pacific capturing an outsized share as the region plays catch-up to the Americas in AI adoption.
This article is for informational purposes only and does not constitute investment advice.
