Despite a slowing global economy and geopolitical tensions, IT services spending—including Infrastructure as a Service (IaaS)—is on track to see 4.8% CAGR from 2024 to 2029, to reach more than $2.1 trillion by 2029. Over half of revenues for the top IT service firms will come from financial services, manufacturing, energy, and the public sector, including defense. But this growth won’t happen automatically. The industry must adapt to new market forces in 2026 to:

  • Help Enterprises Maximize Cloud and AI Adoption. IaaS will grow at twice the rate of the commercial software market. AI software also sees fast growth, enterprise AI adoption in The European Union grew more than 30% in 2024. Thirty-one percent of US business sectors in information, 28% in professional services, and 23% in scientific and technical services will adopt AI in 2025.
  • Increase profitability. The IT services market sees tepid productivity growth. Forrester’s IT service vendor analysis shows headcount is the main predictor of revenue growth in 2024. Another key point is that IT service margins are static comparable to pre-pandemic levels. GenAI will force change as IT service vendors develop new AI partnerships and alliances to move toward fixed-price and asset-based pricing, that will lessen their dependency on headcount to find growth. Margins will increase with the elimination or automation of low-value-added tasks.
  • Compete with software companies. GenAI software spending sees fast growth. Palantir competes with IT service firms to embed an “artificial workforce” into financial services and insurance and OpenAI forward-deploys engineers into client teams to offer highly customized AI services.

IT services companies that thrive will scale globally, adapt regionally, and grow niche capabilities in areas like sustainability, defense, financial services, healthcare, and data sovereignty. Read Forrester’s new report, Global IT Services Market Forecast, 2024–2029, to uncover the growth drivers shaping this $2.1 trillion market.

Have any thoughts? Contact me, Michael O’Grady.

Forrester clients can schedule a Forrester guidance session for more insights and to explore the narratives within this forecast.