While IT budgets are expected to remain in line with 2025 levels this year, spending on technology services will see a modest increase as customers seek security and AI support, according to a recent Bain & Company report. The consulting firm surveyed 280 North American and European company leaders in January. 

Three in 4 respondents expected up to 10% of their company’s tech spending to focus on AI and machine learning. In some sectors, including retail, institutional banking and the oil and gas industry, more than 20% of tech budgets will target AI adoption.

The onus is on technology services providers — including managed service providers, VARs, SIs and other channel partners — to deliver results that integrate AI technologies into workflows. “Business as usual is no longer acceptable, according to Bain’s analysis. 

“AI is becoming a core element of enterprise transformation and the CIO agenda,” said Bain Senior Partner Meghan Chawla. “As companies scale their investments, the focus is moving beyond experimentation toward how AI can support broader business priorities and create value across the enterprise.”

The tech services buyers report points to increased demand for service providers, with a caveat: Buyers want providers who can integrate AI, data, cloud and security capabilities. Fragmented offerings have become outdated as customers seek larger, more outcome-oriented transformation programs.

Productivity gains

Executives are also raising expectations for productivity improvements, especially among developers, and in testing and contact center automation. Leaders expect efficiency gains in the range of 15% to 17%, the survey found.

The focus“will shift conversations from curiosity about capabilities to frank discussions about results,” Bain said in the report.

Services providers who come to the table with repeatable, scalable platforms and measurable results — as opposed to customized, time-and-materials engagements — will have an advantage, Bain said. That will be especially true for the partners who have invested in talent transformation.

Growth factors

The tech services sector already operates under pressure, but AI adoption is a potential boon.

In a separate study from November, “The New Growth Equation for Tech Services,” Bain found that the average industry growth has slowed to about 2% to 3%, down from 4% to 5% before COVID-19. Margins have fallen by more than 200 basis points and valuations have returned to pre-pandemic levels.

While AI is the most “visible disruption,” economic nationalism and an aging population have also contributed to the shift. Business-as-usual means revenue erosion, as does deal discounting, which could cost firms 5 to 7 points of EBIT margin. Overall, service firms risk enterprise value losses of 45% to 50% over the next five years, Bain said.

Disruption has also created opportunities in AI services, core modernization, process transformation, data modernization, edge AI, data center and application-specific chip development. Leading providers in these spaces could grow 8% to 10%, sustain or expand margins and increase revenue multiples by 3 to 3.5 times, according to Bain.

Capitalizing on the opportunities will require providers to rework strategy, delivery and talent models, Bain said.

“The window to act is now, and the gap between leaders and laggards will widen fast,” Chawla said. “Providers that move decisively will be the ones that capture this spend shift. Those that wait risk seeing 30% or more of their revenue base erode as buyers route their budgets to firms that can deliver measurable results.”