Immigration Policy Changes Portend a Growth Shock for the U.S. Wireless Industry

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U.S. wireless operators added more than 51.5 million new wireless phone connections from 2018 to 2024. Where did they come from?

According to company-reported data, industry data, U.S. government data and TBR estimates, U.S. wireless operators collectively added more than 51.5 million wireless phone connections (prepaid and postpaid) from 2018 to 2024, a relatively large number considering the organic population growth rate in the U.S. has slowed significantly over the past two decades as Americans have fewer children and since most people in the country already have at least one wireless phone.


A portion of this increase in phone connections can be explained by situations where one person has multiple lines, such as through work (e.g., business line or first responder line) or by long-tail situations, such as younger and older people subscribing to wireless phone plans for the first time, as well as the net change from births and deaths in the overall population.

However, based on TBR’s research, this only accounts for approximately 56% of total wireless phone net additions during this time frame. Where did the rest of these phone connections come from?

Approximately 44% of wireless phone connection net additions in the U.S. from 2018 to 2024 were from immigrants (legal and illegal)

According to TBR’s research, these 51.5 million new phone connections fall into four main categories, as outlined in Figure 1.


As shown in figures 1 and 2, immigration (both legal and illegal*) was the largest driver of wireless phone net additions for U.S. operators from 2018 to 2024, accounting for an estimated 22.6 million net additions, or nearly 44% of total phone net additions during this seven-year time frame.

This number makes sense considering that, according to official government statistics such as from the Department of Homeland Security (DHS) and Customs and Border Protection (CBP), more than 30 million immigrants (legal and illegal) entered and stayed in the U.S. between 2018 and 2024. Of this number, it is reasonable to assume around three-quarters of these immigrants obtained cellphone service (prepaid or postpaid).

One of the first things immigrants do when they enter the country (legally or illegally) with the intention of staying is to purchase wireless phones and wireless phone service. Most people who enter the country are of an age that they would use phones.

This significant influx of new population into the U.S. drove a secular growth trend for wireless phone connection additions for the wireless industry from 2018 to 2024, and immigration represented the largest driver of wireless phone connection additions for U.S. wireless operators.

However, now that immigration policy is fundamentally changing under the Trump administration, this tailwind has become a headwind for operators and will require a structural reassessment of growth prospects for the industry.

TBR expects this growth shock will begin to present itself in operators’ 2Q25 results, with the effects more clearly seen in 2H25 results.

*Legal immigration primarily includes green card holders, visa holders (e.g., H-1B for temporary works; F1 and J1 for international students) and refugees/asylum seekers. Illegal immigration primarily reflects CBP encounters (all borders), “gotaways” and visa overstays.

 

Why will there be a growth shock for wireless phone net adds in the U.S. in 2025?

Given this growth slowdown, U.S. wireless operators face a conundrum. How will they continue showing robust net phone additions every quarter? There is no easy solution, but in the last section of this report TBR outlines some tactics operators are employing, or might employ in the future, to mitigate the negative immigration-related effects on their earnings results.

Since the start of President Trump’s second term, there has been a reduction of more than 80% in the flow of illegal immigrants into the country, and legal immigration into the U.S. has also declined significantly. Additionally, there are other population headwinds at play:

  • Deportations of immigrants currently residing in the U.S. are ramping up (U.S. government agencies are on pace for over 500,000 deportations in calendar year 2025, up from over 271,000 in 2024)
  • Emigration has increased as more people are choosing to leave the country voluntarily.
  • Slowing birth rate
  • Increase in death rate as the baby boomer generation ages

If we use a conservative estimate and assume a 50% reduction in the number of total new immigrants entering the U.S. from 2025 onward (and if other variables stay constant), this implies a reduction of more than 20% in the total level of new wireless phone connections, a significant challenge for wireless operators since phone connections are operators’ most lucrative offering. Even a 20% reduction in total wireless phone net additions would have a significant impact on operators’ revenue, margins and cash flow.

It is incorrect to assume immigrants only use prepaid plans

Despite claims by the U.S. wireless industry that immigrants predominately use prepaid phone service, the reality is that total prepaid phone connections declined by nearly 4.5 million in aggregate from 2018 to 2024 while postpaid phone net additions exceeded 56 million in the same period. Given that more than 30 million immigrants are estimated to have entered and stayed in the U.S. during that seven-year period (according to official U.S. government statistics from agencies such as CBP and DHS), it is unreasonable to assume that such a large influx of the population was absorbed by the prepaid market. Rather, it must have been mostly absorbed by the postpaid market.

What U.S. telcos are not saying but Canadian telcos are

U.S. wireless operators have been asked by Wall Street analysts on quarterly earnings calls and at investment conferences about the potential effects of immigration policy changes on their phone connection metrics. Thus far, operators have unanimously downplayed any impact. However, given immigration levels have plummeted since January 2025 (illegal border crossings are down 80% to 90% year-to-year) and voluntary and involuntary deportations are ramping up, there must be at least some impact.

Given immigration has represented approximately 44% of total phone net additions from 2018 to 2024, assuming legal and illegal immigration levels are down a conservative 50% compared to the past seven years, this would imply a reduction of more than 20% in the level of phone net additions moving forward, essentially taking the seven-year annual average of 7.4 million industrywide wireless phone net additions down to an annual average of just below 6 million moving forward. This reduction in new phone additions (which is operators’ most lucrative connection type from an average revenue per user [ARPU] and margin perspective) implies a growth shock, which would force operators to lower revenue and earnings projections. It is possible that operators expect most or all of any reduction in the immigration aspect of their phone connection dynamics could be mitigated by growth in other phone connection types, but history suggests that is unlikely.

The minimal wireless phone connection net addition impact observed in U.S. wireless operators’ financial results in 4Q24 and 1Q25 is likely due to the following reasons:

  • Lag time between when someone enters the country and obtains a phone and phone plan and when that result is reflected in U.S. wireless operators’ earnings reports
  • The timing of the new administration taking over and implementing and enforcing policy changes
  • The delay between when someone is deported or emigrates and their phone line is shut off
  • The lag in company reporting — earnings are publicly released one to two months after the quarter ends; there was a surge in immigrants entering the country leading up to the change in administrations and immigration reform began to be implemented and enforced in late January 2025

However, this will change, starting as soon as in 2Q25 and more so in 2H25 as the decline in net immigration begins to flow through U.S. wireless operators’ quarterly figures.

By contrast, the Big Three telcos in Canada have been very forthcoming in talking about and shaping expectations with stakeholders about the effects of immigration policy changes in the country. In 2024 the Canadian government reduced target levels for permanent residents by 20% from 2025 to 2026, set caps on international students, and tightened eligibility requirements for foreign workers. These policy changes are not at the same level as those in the U.S. Why are operators in Canada publicly stating that the country’s lower immigration targets are slowing their subscriber net additions, yet U.S. telcos claim there will be no meaningful impact? Something does not add up.

“We anticipate the environment for our businesses to remain competitive in the coming year with continued moderating wireless subscriber growth versus 2024 as Canada’s immigration and foreign student levels decline.” — Glenn Brandt, CFO, Rogers, 4Q24 earnings transcript

“The decrease in gross and net additions this quarter was a result of a less active market, slowing population growth as a result of changes to government immigration policies, and our focus on attracting subscribers to our premium 5G Rogers brand.” — Rogers 1Q25 earnings press release

“In the quarter, Rogers delivered a combined 34,000 net new wireless subscribers, down from 61,000 last year, reflecting the smaller market size due to reduced immigration.”

— Glenn Brandt, CFO of Rogers, 1Q25 earnings transcript

Canadian telecom industry experiencing ‘strong subscriber growth’ thanks to immigration: report — Mobile Syrup, Feb. 22, 2024

Telcos blame Canada’s immigration policies for slower subscriber growth — Mobile Syrup, May 12, 2025

AT&T, T-Mobile and Verizon all gained the most subscribers from immigration and now have the most subscribers to lose

The largest U.S. telcos will be disproportionately affected by lower immigration levels. These operators have been the biggest beneficiaries of immigration flows, adding millions of net-new wireless phone subscribers to each of their businesses since 2018, but now this tailwind is turning into a headwind.



All of the major U.S. telcos have clusters of branded retail stores near major border-crossing areas with Mexico, such as in southern California and parts of Texas. Having store clusters near crossing hubs enables telcos to cater to the needs of migrants coming into the country (one of the first things immigrants do when they come into the country is buy wireless phones and phone plans) and jockey for new phone subscriber opportunities.

Tactics U.S. telcos can employ to mitigate the immigration impact

Though some telcos might start to publicly discuss the impact of immigration on their businesses, TBR expects most U.S. telcos to remain cagey about these changes and the effects of immigration on their businesses. TBR believes the telcos can leverage certain tactics to mask or mitigate the impact to their business results.

Indicators to watch

  • Free line offers: Offering free lines enables telcos to show enhanced phone connection figures even though the revenue from the free line is not generating the revenue of an actual phone subscriber. Telcos will likely still receive activation fees and collect some other taxes and fees for allowing subscribers to carry the “free” line.
  • Increase in competitive pricing offers and promotions: Special deals enable telcos to retain existing customers and take phone connection share from other operators. This could serve to offset some of the negative effects of immigration-related phone disconnections.
  • Timing of line shutdowns: Another potential tactic telcos could employ is to delay the roll-off of line shutdowns. One situation where this can occur is when illegal immigrants are deported, leaving their phone service still in effect even though no one is using it and the bill is unlikely to be paid. There is also a trend of emigration, whereby immigrants (legal or illegal) leave the country voluntarily, canceling their phone service before they leave. This is another headwind to phone connection metrics for the telecom industry.
  • Increase in allowance for doubtful accounts: This is also referred to as allowance for credit losses. The shutdowns described above typically lead to bad debt expense, which will likely rise with deportations on pace to exceed 500,000 in 2025.

Key takeaways

If you see minimal impact in operators’ headline wireless phone subscriber numbers from immigration, keep in mind that the aforementioned tactics are likely in play.

The negative effects might not show up in 2Q25 results and might not show up in a major way thereafter because wireless operators might be able to hide most of the impact via programs like offering a free phone line on multiline plans, such as what T-Mobile is doing.

Conclusion

Though the topic is rarely discussed, U.S. wireless operators have been relying on both legal and illegal immigrants to drive a significant portion of their underlying growth in phone connection net additions.


U.S. wireless operators face a major new headwind starting in 2H25 as traditionally important drivers of net wireless phone additions — operators’ most lucrative customers — slow meaningfully. With total immigration levels (legal and illegal) into the U.S. down by more than 50% so far this year compared to year-ago levels, coupled with an increase in deportations of existing residents as well as other population headwinds, telcos will struggle to demonstrate the same level of phone net addition numbers they have enjoyed for the past decade.

 

The Good, the Bad and the GenAI Opportunity in Cloud Ecosystems

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Register for The Good, the Bad and the GenAI Opportunity in Cloud Ecosystems

 

Hyperscalers and their partners need each other more than ever

In the current cloud and IT market, the success of both hyperscalers and their partners has never been so intertwined. Partners, most critically consultants, systems integrators, managed services providers and ISVs, are the most important route to market for hyperscalers to achieve growth. And for those partners, their business models depend on large-scale cloud environments that incorporate AI, generative AI (GenAI) and other emerging technologies that their customers desire.

 

Join Principal Analyst Allan Krans, Senior Analyst Catie Merrill and Senior Analyst Alex Demeule Thursday, Sept. 4, 2025, for a live discussion and Q&A on TBR’s latest partner research for hyperscalers, IT services providers and ISVs. The team will share exclusive feedback from all parties within these ecosystems, taken from TBR’s new Voice of the Partner, Hyperscaler report, which identifies areas that are still working and still challenging for these partnerships as well as the direction these relationships will go moving forward.

 

In this FREE session on opportunities within the cloud ecosystem you’ll learn:

  • The most critical elements for a successful partnership
  • Partner perceptions of Amazon Web Services, Microsoft and Google Cloud
  • The ways GenAI is impacting partner activity and opportunity, including how AI ISVs partner differently with hyperscalers
  • How hyperscalers’ marketplaces serve GenAI tools (and how hyperscalers deploy capital)
  • The current challenges within ecosystems
  • Where the greatest opportunity for future success lies

 

Register Now

 

TBR Insights Live sessions are held typically on Thursdays at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. Previous sessions can be viewed anytime on TBR’s Webinar Portal.

 

TBR Insights Live: The Good, the Bad and the GenAI Opportunity in Cloud Ecosystems

Geopolitics with Purpose: EY-Parthenon Drives Strategy, Not Just Awareness

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In early July, TBR met with Oliver Jones and Antony Jones, both part of EY-Parthenon. Oliver Jones runs the firm’s Geopolitical Risk Advisory practice, and Antony Jones manages the Parthenon brand. The following reflects that discussion and TBR’s ongoing analysis of EY, the rest of the Big Four, and the management consulting space.

EY-Parthenon turns geopolitical risk into strategic growth opportunities

TBR has long maintained that the Big Four firms have an inherent advantage against all competitors when it comes to understanding and advising on geopolitical risk. Perhaps only the U.S. government has the same global spread of talent, with professionals in nearly every country, most intimately aware of local business, economic and even political trends. When EY-Parthenon showed off its Geopolitical Advisory team recently, TBR wanted to know: Is this something special?
According to EY, there are several factors that make its Geopolitical Advisory practice special, or at least different than its peers’ similar practices. First, the firm backs its current assessments with eight-plus years of geopolitical research, giving the firm’s analysis additional perspective and depth. Second, according to Oliver Jones, EY-Parthenon’s Global Geostrategic Business Group leader, EY’s counsel addresses issues at a highly granular level — industry, geography, technology, location and business model — rather than maintaining just a broad view. Third, Jones said EY-Parthenon helps its clients to answer the question, “Well, what should we do about it?”

The firm does not stay stuck in “interesting conversation mode,” examining the nuances of tricky geopolitical situations and trends, but instead takes on clients’ challenges and provides advice informed by EY’s research. In Jones’ phrase, “geopolitics in practice,” he added one more nuance that perhaps separates EY from peers in this area: The geopolitical advisory team emerged from and belongs to EY-Parthenon — the firm’s transformative strategy and transactions arm — and not from the Risk practice, as is the case at most peers. This evolution, according to Jones, gives EY’s team “investment DNA” and not “risk DNA,” so the team’s value proposition is not only risk mitigation but also growth strategies.

Putting geopolitics at the heart of a growth strategy

Oliver Jones acknowledged that knowledge management at EY can be as challenging as it is everywhere else and said his team focuses on getting all the money-making engines within the firm thinking about geopolitical risk, a task made slightly easier by the constant barrage of geopolitical news, including kinetic wars and trade wars. He said EY-Parthenon’s research shows geopolitical risks and artificial intelligence have risen to the top of boards of directors’ concerns. Of the two, geopolitical risk is more immediate and visceral while also underpinning some of the AI-related concerns around data center locations and hyperscaler dominance.

He also explained that chief risk officers have not been his practice’s main focus — back to the advisory DNA — but instead his team works alongside other EY-Parthenon professionals as they engage with board chairs, board members, CEOs and chief strategy and/or chief sustainability officers. As Antony Jones, EY-Parthenon Brand, Marketing and Communications leader, noted, EY’s brand centers on strategic issues, and EY-Parthenon — and EY broadly — has access to boards, senior private equity and government clients, providing a natural entrée for  brand centers on strategic issues. The firm routinely has access to board chairs, providing a natural entrée for geopolitical advisory. As for the commercial models, Oliver Jones explained that the firm offers both monthly retainer services, a kind of managed services offering with dashboards and indicators, as well as bespoke engagements, typically focused on a specific problem set or location.

Is EY really different? Way back in 2017, we wrote about PwC’s Growth Markets Centre and how that firm provided “analysis for clients and partners, supplemented by PwC professionals with direct experience in previous engagements. The firm assists clients with regional-, country- and city-level market analysis and, when possible, information from and the views of PwC partners who have worked in the selected cities with clients in the same or similar industries.” The partner who led that effort came from the firm’s strategy organization and now resides within PwC’s International Growth Practice. Deloitte and KPMG appear to house geopolitical risk either across multiple practices (Deloitte) or within Risk (KPMG), separating, at least on paper if not in practice, those firms’ strategy consulting “arms” from their geopolitical risk “fingers.”

Organizational structure, DNA and even knowledge management can only differentiate a firm so much, and none of those issues and decisions matter to clients looking for advice. For EY and peers, the challenge remains permission: Do clients want to pay you for your insights on trade wars, shooting wars, supply chains, elections, regulations and geopolitical risks? Framing a discussion around what is happening in the world, what those developments mean in a client’s industry and geography, and then moving to what the client should do about it attacks that permission question directly. More than smart thinking, EY’s focus starts with clients’ paths to growth.


Other firms will say they are doing the same thing, just in a slightly different way, and TBR does not doubt that. What could separate a firm is the willingness and ability to tap into that global talent pool we mentioned at the start of this post. You have a global client headquartered in Frankfurt, Germany, that wants to know how French politics might dampen economic growth? Maybe ask the 33,000 professionals you have living in Paris and beyond what they think. When the CIA wants to know what is happening, the first place it turns to is the people with boots on the ground.

Manufacturing Growth Slows, But EMEA IT Services Vendors Find Lifeline in Public Sector Wins 

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TBR FourCast is a quarterly blog series examining and comparing the performance, strategies and industry standing of four IT services companies. The series also highlights standouts and laggards, according to TBR’s quarterly revenue projections and geography estimates. This quarter, we look at Accenture, Atos, Capgemini and IBM Consulting in the Europe, Middle East and Africa (EMEA) market, and compare how their industry diversification, portfolios and localization strategies position them for revenue growth. Atos and Capgemini, the two IT services companies whose EMEA revenue makes up over half of total revenue, experienced a steady decline in trailing 12-month (TTM) year-to-year revenue growth in recent quarters. Yet, Accenture and IBM were better able to maintain growth as macroeconomic conditions deteriorated in recent quarters.



IT services revenue in EMEA has experienced slow expansion rates for several quarters, with trailing 12-month (TTM) revenue growth at only 0.8% to 0.9% year-to-year in 3Q24, 4Q24 and 1Q25, according to TBR estimates provided in our IT Services Vendor Benchmark, which tracks 31 companies. In the most recent quarter, EMEA experienced the slowest growth among all geographies due to ongoing challenges in the manufacturing sector. At the same time, IT services companies were able to capture more deals in financial services and the public sector, as the European Central Bank (ECB) cut rates in 4Q24 and 1Q25 and the European Union (EU) increased defense and modernization spending. Companies’ successes in recent quarters were dependent on their ability to diversify revenue, but, as always, their portfolio investments and localization and acquisition strategies will determine growth long-term.

Aligning portfolios and resources to demand in the public sector is vital to capturing revenue growth opportunities

Accenture, Atos, Capgemini and IBM Consulting are focusing more on opportunities in the public sector in EMEA, especially as manufacturing faces persistent challenges and the Department of Government Efficiency (DOGE) is causing some revenue loss in the U.S. public sector. For example, Capgemini’s largest vertical is manufacturing, but the company is capitalizing on more deals in the public sector. According to TBR’s 1Q25 Capgemini report, the company “is combining capabilities around digital engineering, data and AI, cybersecurity and digital transformation to enable activities such as around military transformation, improving supplier networks, delivering production management and ensuring quality standards. The company is also working with defense organizations around integrating workforce management and data and AI technologies.” With the U.K.’s Department for Business and Trade, Capgemini is delivering data and product services to support the department with digital, data and technology related to trade and regulation.


Historically, Atos has been very involved in the European public sector, which we believe accounts for about 20% of the company’s revenue. However, client trust has wavered due to Atos’ most recent financial restructuring, which was completed in December, in addition to the company’s frequent CEO turnover in recent quarters. The company nevertheless secured deals with Serbia’s Office for IT and eGovernment and the U.K.’s Department for Environment, Food and Rural Affairs (DEFRA) and National Savings and Investments bank. The European public sector presents an interesting opportunity for other vendors, notably IBM, as Atos fails to entirely capture its usual market share.


IBM, along with Accenture Federal Services (AFS), has experienced DOGE-related pressures. According to TBR’s 1Q25 IBM Consulting report, “TBR expects IBM Consulting’s 2025 revenue in the U.S. federal sector, which accounts for less than 10% of the business’s revenue, to be negatively affected by DOGE initiatives as IBM stated during its earnings call that two contracts were negatively impacted by DOGE in 1Q25.” In January, IBM completed layoffs in its public sector headcount in Raleigh, N.C.; Dallas; New York; and California. IBM is turning to new markets to bolster its public sector revenue segment. For example, IBM recently secured a deal with the U.K.’s Home Office to design, build and integrate an Emergency Services Network and deliver IT infrastructure. As IBM already seems to be rebalancing its resources, TBR anticipates the company will capture more public sector deals across Europe, which will help recover some revenue recently lost due to DOGE cuts.

 

Capgemini EMEA and Atos EMEA TTM Revenues and Growth Rates (SOURCE: TBR)


Accenture also suffered DOGE-related setbacks and is taking a similar approach. Accenture’s health and public service sector revenue is up 8.2% year-to-year. TBR anticipates the sector’s performance will continue to improve with Accenture’s recent investments in sovereign cloud offerings with Amazon Web Services (AWS) and Google Cloud, complementing the EU’s efforts to strengthen defense and security. Further, Accenture is leveraging its partnership with Google Cloud to drive cloud adoption by developing sovereign cloud offerings and a Center of Excellence (CoE) in Saudi Arabia, supporting its ability to capture local clients. Accenture is not the only company to be diligent in expanding its portfolio to cater to governments in EMEA.


Although Atos’ public sector revenue has faced many challenging quarters, most recently declining 16.4% year-to-year in 1Q25, the company is leaning into its strengths. Atos is focused on the expansion of its security portfolio, especially after the sale of its Advanced Computing, Mission-Critical Systems and Cybersecurity Products division to the French government fell through. Although Atos has received a new confirmatory offer from the French government, it is only for the company’s advanced computing business. In April Eviden formed a partnership with Cosmian to release a joint sovereign encryption key management solution, which is supported by the integration of Eviden’s Hardware Security Modules and Cosmian’s crypto agile key management system, aligning with increased demand among countries in Europe for more sovereign solution. If Atos is able to regain and maintain client trust with its renewed liquidity and financial stability, the company may be able to capture more deals in security, supporting growth across its largest geography.

Strategically adding onshore skills and local centers enables clients to provide more in-depth value

IT services companies are focused on balancing onshore skills, as evidenced by Accenture’s recent launch of a CoE in Saudi Arabia. IBM leverages its proximity to clients to deliver value. In March IBM announced it will deploy the IBM Quantum System Two in San Sebastian, Spain, at the IBM-Euskadi Quantum Computational Center at the Ikerbasque Foundation for the Basque government. The joint center will serve members as well as academics, research institutions and industry experts. Additionally, Accenture launched a National Security Operation Center in Kuwait to provide local cybersecurity services for the Kuwait government’s Central Agency for Information Technology.

 

Accenture EMEA and IBM Consulting EMEA Revenues and Growth Rates (SOURCE: TBR)


In addition to leveraging localization strategies, IT services companies still use EMEA locations to grow AI. Capgemini announced it will open an AI CoE in Cairo focused on supporting clients across the globe with adoption of generative AI (GenAI) and agentic AI, particularly through creating industry-specific use cases for life science, aerospace and energy verticals. Although Capgemini’s offshore resources remain largely India-based, the company is strengthening relations with Egypt. Capgemini’s CEO of Egypt, Hossam Seifeldin, was appointed a member of Egypt’s Advisory Committee on Digital Economy and Entrepreneurship to facilitate economic growth and digitalization within the country. Similarly, Capgemini CEO Aiman Ezzat was appointed chair of the France-Egypt Business Council in France. The two additions will likely provide Capgemini with better access to resources in the country.


Meanwhile, Atos continues to rotate its top leadership to strengthen its direction in EMEA. Atos appointed Merecedes Paya as head of Iberia with the intention of capitalizing on opportunities in cloud, supercomputing and cybersecurity. Also, Atos appointed Rama El Safty as general manager of its Egypt business to capture opportunities in services and AI and for digital transformation in the public sector. Atos initiatives may help these areas, but continuous new appointments create uncertainty among clients. Unlike the other three selected vendors, TBR estimates Atos already has approximately half of its resources in EMEA, positioning it well to deliver better value with proximity.

Investing in more Europe-based innovation to enhance portfolios helps vendors differentiate

Of the four companies covered in this blog, only Accenture and Capgemini have completed acquisitions in Europe within the past calendar year. Accenture is moving away from large acquisitions and instead using its purchases to boost struggling verticals and expand specialized capabilities. This is evident in Accenture’s acquisition of U.K.-based Altus Consulting, which helps the company’s position in financial services and insurance and in product design, customer experience and administration. Additionally, Accenture’s acquisition of Staufen AG augments Accenture’s manufacturing vertical with supply chain and operations professionals. Capgemini is continuing to pursue targets that have niche capabilities, most recently acquiring Delta Capital BV, which will enhance Capgemini’s financial crime, risk management and regulation compliance offerings within the financial services industry in Europe. In addition, financial services was also a struggling vertical for Capgemini, with revenue contracting during most of 2024.


As Accenture and Capgemini continue to engage in small, strategic acquisitions, they are becoming much more active in startup investments. Capgemini has launched an investment fund with ISAI, ISAI Cap Venture II. The fund will focus on B2B startups and scaleups in the U.S. and Europe and will provide Capgemini with new revenue opportunities with companies that reach maturity. Accenture is also increasing its investments but is focused on the U.S. market. For example, Accenture Ventures recently invested in Voltron Data, Auru, Workhelix AI, QuSecure and Workera, spanning different technologies such as AI post-quantum cryptography. Although the regional focus is not surprising as the U.S. has a multitude of startups based in Silicon Valley, investing in Europe first when applicable could help firms better compete in the market.


IBM, on the other hand, has focused on larger acquisitions in the U.S. in AI, cloud and data. The last acquisition completed in Europe was Bulgaria-based Pliant in March 2024. As IBM remains a U.S.-based company, TBR does not anticipate that IBM will start prioritizing acquisitions across EMEA as the company’s innovation tends to be developed in its Americas region first. IBM seems to be leaning more into its Americas presence as the company announced at the end of April that it will be investing $150 billion in the region over the next five years. The investment includes $30 billion allocated to research and development of new mainframe and quantum computers. However, as IBM executes on its Americas-focused innovation strategy, it may miss innovation opportunities with European clients.

Playing to strengths while enhancing client value through increased proximity and innovation will boost vendors’ positioning in EMEA

When comparing TBR’s revenue projections for the four selected companies, Accenture has had the fastest revenue growth with the highest projections. Accenture’s unique acquisition pace is responsible for the acceleration and will help propel the company forward. For example, the company’s TTM year-to-year organic growth from 1Q25 was 0.7%, but this figure rose to 4.1% when including inorganic growth. Its acquisitions in EMEA have undoubtedly contributed to the company’s growth with increased access to innovation as well as in support of volatile verticals. Further, the company’s careful bets in localization have improved ties across EMEA.

 

IT Services Revenue Forecast for Accenture, Atos, Capgemini and IBM Consulting (SOURCE: TBR)


Capgemini continues to rely on its offshore resources, but a bit more emphasis on localization, often preferred by public sector clients, may help Capgemini be even better positioned for deals in the sector. Capgemini’s stronger emphasis in Europe-based innovation differentiates the company from the other selected vendors. This may help the company deliver new innovation to EMEA clients, especially given that Capgemini’s presence in EMEA is larger proportionally compared to Accenture and IBM. On the other hand, IBM’s investments in innovation continue to be based in the U.S., which will likely lead to a delay in delivery in its EMEA market. However, if IBM prioritizes working with clients closely as it has recently done recently with the Basque government, this will help the company maintain its growth trajectory.


Atos’ revenue has been continuously declining for the past 13 consecutive quarters, and its performance in EMEA has been no outlier to its struggles. Yet, continued strategic investments in areas of strength such as security would help Atos win back some public sector revenue. As the company has struggled with debt and profitability, Atos is in an unfavorable position to compete with acquisitions, particularly as it is focused on divestments. Doubling down on the company’s strengths could help restore performance.


The selected four companies all have a strong foothold in the EMEA market, but balancing investments in innovation, such as through startup investments and skills development, with close client relations, through releasing relevant portfolio offerings and localization efforts will be key in competing for market share. Adapting to demand changes in the public sector and in recently underperforming verticals, such as financial services and manufacturing, have enabled Accenture, Atos, Capgemini and IBM Consulting to capture some growth but balancing resources with innovation will promise stronger performance.

Capgemini to Acquire WNS for $3.3B, Tripling BPO Revenue and Accelerating AI Ambitions

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Capgemini acquires WNS to accelerate its journey toward intelligent operations in BPO

On July 7, Capgemini announced its intent to acquire WNS for $3.3 billion. The acquisition will not only add scale to the company’s business process outsourcing (BPO) capabilities with more than 64,000 employees but also provide Capgemini with a broader client base. TBR estimates that Capgemini’s BPO revenue was $597 million in 2024, and WNS had $1.3 billion in BPO revenue in the same period, meaning acquiring WNS would more than triple Capgemini’s revenue in the segment. If the acquisition is approved, Capgemini will leverage WNS’ client base to jump-start its intelligent operations model, going beyond the traditional BPO model dependent on labor arbitrage and introducing generative AI (GenAI) and agentic AI capabilities to build autonomous workflows.

 

The acquisition undoubtedly serves as an important stepping stone to transform Capgemini’s BPO offerings, which are housed in its Operations & Engineering segment, yet Capgemini must be strategic with its approach, balancing new clients’ expectations with the introduction of incremental GenAI and agentic AI capabilities. Capgemini’s recent investments in partner-enabled portfolio offerings position the company well for a large change in the segment, such as its new agentic AI offerings announced with Google Cloud in April and its NVIDIA NIM-powered industry-specific agentic AI solutions and agentic gallery. During Capgemini’s analyst session on the WNS acquisition, the company disclosed it had more than €900 million in GenAI bookings in 2024. Leveraging the acquisition to stimulate organic growth, however, will require Capgemini to be mindful of service quality during the integration process while continuing to build out its portfolio offerings to secure new bookings.

Careful integration will create synergies, but persistent portfolio investments and well-timed headcount adjustments will support new revenue model

Although Capgemini is no stranger to large acquisitions, it does not complete them often. In the past 10 years, Capgemini has only completed a couple of other similar-size purchases. Capgemini purchased IGATE in 2015, which at the time generated $1.3 billion in revenue and added 30,000 professionals. In 2020 Capgemini completed the acquisition

 

of Altran at €3.6 billion with €3.2 billion in revenue and approximately 50,000 employees. Capgemini purchased Altran with the intent of using the company’s intelligent industry solutions as well as bringing more transformation capabilities in AI, cloud, digital, edge computing and IoT. Altran also brought new capabilities in engineering and R&D services. The acquisition of Altran fueled a 71.8% year-to-year growth rate in Capgemini’s Operations & Engineering segment in 2Q20. Following the completion of the acquisition, the company added new solutions to its portfolio to maintain momentum.

 

In 4Q20, Capgemini released a set of intelligent industry offerings in 5G and edge as well as in driving automation systems. After completing the integration of Altran and capitalizing on the new synergies, the company formed the Capgemini Engineering segment, which incorporated the former Altran business. In 4Q21 Capgemini’s Operations & Engineering revenue increased 9.1%, and overall corporate revenue grew 15% year-to-year, of which 14.1% was organic. Although Capgemini was able to see initial growth in the segment, albeit lagging the company’s overall growth, the segment’s revenue is not much higher today. In 4Q21 Operations & Engineering revenue was €1.5 billion, and in 4Q24 it was slightly higher at €1.6 billion. If Capgemini wants to leverage WNS as part of its AI strategy, it may need to be more vigilant about sustaining momentum.

 

TBR expects Capgemini to take a similar approach with WNS as it did with Altran, first taking time to integrate the business while building out its GenAI and agentic AI capabilities, then adjusting its workforce to account for any talent overlap and prepare for structural changes brought about by increased automation. Capgemini will try to make its new workforce leaner, especially as WNS is expected to expand total headcount by 18.8% while only increasing revenue by 5.5%. Some of the adjustments will come naturally as hyperautomation capabilities will cannibalize traditional labor arbitrage. On the other hand, Capgemini will have more room to introduce new GenAI and agentic AI offerings in BPO, providing the company with the opportunity to learn best practices in a lower-stakes environment before introducing the technology to its other segments, Strategy & Transformation and Applications & Technology.

The BPO segment is an easier area for companies to test GenAI and agentic AI offerings and apply those lesson

s learned to other segments. Making an acquisition in this segment, as Capgemini has announced, is a way to get a head start, and other peers could follow suit. For example, Deloitte has prioritized expanding its Operate nearshore and offshore resources, but completing an acquisition of one of WNS’ peers, such as Genpact or EXL, would provide the company with more opportunity to innovate with a broader client base.

 

As IT companies seek to expand business services operations to boost their ability to deliver new technologies, they are competing on market share. Other companies, particularly Accenture, already have a much bigger presence in the segment. In 2024 Accenture’s BPO revenue was $10.7 billion; even with acquisitions, this level will be difficult for most other companies to attain. Potential investments from other firms that already have a large BPO business could threaten Capgemini’s strategy.

 

As part of Capgemini’s intelligent operations vision, the company wants to implement an outcome-based pricing model. Although this is a good long-term goal, the company faces many hurdles. Of WNS’ total revenue, 24% is derived from non-FTE-based pricing. However, the acquisition will greatly increase headcount, and Capgemini still needs to ramp up its agentic AI and GenAI offerings, meaning that implementing outcome-based BPO pricing is still years away. WNS will likely bring efficiencies to the company in other ways. WNS’ annual revenue growth has slowed in recent years, from year-to-year growth of 7.7% in 2023 to 1.1% year-to-year in 2024. Yet the company has a healthy operating margin, averaging 10.8% in 2024 and reaching 15% in 1Q25. The slowdown makes it a well-timed sell for WNS shareholders as BPO’s operating model is changing, but the company holds value in its wide client base.

 

WNS has a strong pipeline with a backlog-to-revenue ratio of 3.2. Capgemini has the opportunity to use this acquisition to facilitate innovation and deliver its emerging GenAI and agentic AI capabilities to clients, which are increasingly searching for more operational efficiencies. The acquisition could bring capabilities beyond initial inorganic revenue if Capgemini maintains service quality while investing in emerging capabilities in hyperautomation.

AMD Lays Out its Road Map to Erode NVIDIA’s Dominance in the AI Data Center

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All eyes were again trained on San Jose, Calif., during AMD Advancing AI 2025, held on June 12, just three months after NVIDIA GTC 2025. The event centered on AMD’s bold AI strategy that, in contrast to that of its top competitor, emphasizes an open ecosystem approach to appeal to developers and organizations alike. The entire industry seeks increased competition and accelerated innovation in AI, and AMD plans to fill this void in the market.

Catching up with NVIDIA — can AMD achieve the seemingly impossible?

AMD’s Advancing AI 2025 event presented an opportunity for CEO Lisa Su to outline how AMD’s investments, both organic and inorganic, position the company to challenge NVIDIA’s dominant position in the market. During the event’s keynote address, Su announced new Instinct GPUs, the company’s first rack scale solution, and the debut of ROCm 7.0, the next generation of the company’s open-source AI software platform. She also detailed the company’s hardware road map and highlighted strategic partnerships that underscore the increasing viability of the company’s AI technology.

 

However, NVIDIA’s dominance in the market cannot be understated, and the AI incumbent’s first-mover advantage has created massive barriers of entry to the space that AMD will tactfully need to invest in overcoming. For instance, TBR estimates NVIDIA derived more than 25 times the revenue AMD did from the sale of data center GPUs in 2024. Nonetheless, AMD is committed to the endeavor, and the company’s overall AI strategy is clear: deliver competitive hardware and leverage ecosystem openness and cost competitiveness to drive platform differentiation and gain share in the market.

Acquired assets pave the way for Helios

Su’s keynote address began with the launch of AMD’s Instinct 350 Series GPUs, comprised of the Instinct MI350X and MI355X. The Instinct MI355X outperforms the MI350X but also requires liquid cooling, whereas the MI350X can be air cooled. As such, the Instinct MI355X offers maximum inferencing throughput and is specifically designed to be integrated into high-density racks while the MI350X targets mixed training and inference workloads and is ideal for standard rack configurations. Both GPUs pack 288GB of HBM3e memory capacity — significantly more than the 192GB offered by NVIDIA’s B200 GPUs.

 

The denser memory architecture of the AMD Instinct 350 Series is a key enabler of the chip’s comparable performance to NVIDIA’s B200 where AMD claims to deliver equivalent to approximately twice the compute performance of Blackwell, depending on the floating-point precision of the model being run. However, even more noteworthy was AMD’s introduction of its open rack scale AI infrastructure, which was made possible by the company’s 2022 acquisition of Pensando Systems.

 

Along with the acquired company’s software stack, Pensando added a high-performance data processing unit (DPU) to AMD’s portfolio. By leveraging this technology and integrating Pensando’s team into the company, AMD unveiled the industry’s first Ultra Ethernet Consortium (UEC)-compliant network interface card (NIC) for AI, dubbed AMD Pensando Pollara 400 AI NIC, in 4Q24, highlighting the company’s support of open standards.

 

At Advancing AI 2025, Su formally announced the integration of Pollara 400 AI NIC with the company’s MI350 Series GPU and fifth-generation EPYC CPU to create the company’s first AI rack solution architecture, configurable as an air-cooled variant featuring 64 MI350X GPUs or a liquid-cooled variant featuring up to 128 MI355X GPUs. The development of AMD’s rack scale solution architecture comes in response to the release of NVIDIA’s GB200 NVL72 rack scale solution, with both racks being Open Compute Platform (OCP)-compliant to ensure interoperability and simplified integration with existing OCP-compliant infrastructure.

 

Going a step further, at the event Su introduced AMD’s next-generation GPU — the Instinct MI400 series — alongside the company’s next-generation rack scale solution, both of which are expected to be made available in 2026. The Instinct MI400 series is slated to deliver roughly twice the peak performance of the MI355X, while Helios — AMD’s next-generation rack scale solution — will leverage 72 MI400 series GPUs in combination with next-generation EPYC Venice CPUs and Pensando Vulcano network adapters. Unsurprisingly, Helios will adhere to OCP standards and support both Ultra Accelerator Link (UALink) and UEC standards for GPU-to-GPU interconnection and rack-to-rack connectivity.

 

In comparison to the prerelease specs of NVIDIA’s upcoming Vera Rubin NVL72 solution, which is also scheduled to be released in 2026, Helios is expected to deliver the same scale-up bandwidth and similar FP4 and FP8 performance with 50% greater HBM4 memory capacity, memory bandwidth and scale-out bandwidth. However, with AMD GPUs delivering higher memory capacity and bandwidth than equivalent NVIDIA GPUs, this begs the question: Why do NVIDIA GPUs dominate the market?

Developers, developers, developers

At NVIDIA GTC 2025, CEO Jensen Huang said, “Software is the most important feature of NVIDIA GPUs,” and this statement could not be more true. While NVIDIA has benefited from first-mover advantage in the GPU space, currently the company’s GPU release cycle is only slightly ahead of AMD’s in terms of delivering roughly equivalent silicon to market from a compute performance perspective. However, AMD has a leg up when it comes to GPU memory capacity, which helps to drive inference efficiency.

 

Where NVIDIA’s first-mover advantage really benefits the company is on the software side of the accelerated computing equation. In 2006 NVIDIA introduced CUDA (Compute Unified Device Architecture), a coding language and framework purpose-built to enable the acceleration of workloads beyond just graphics on the GPU. Since then, CUDA has amassed a developer base nearing 6 million, boasting more than 300 libraries and 600 AI models, all while garnering over 48 million downloads. Importantly, CUDA is proprietary, designed and optimized to exclusively support NVIDIA GPUs, resulting in strong vendor lock-in.

 

Conversely, AMD’s ROCm is open source and relies heavily on community contributions to drive the development of applications. Recognizing the inertia behind CUDA and the legacy applications built and optimized on the platform, ROCm leverages HIP (Heterogenous-computing Interface for Portability) to allow for the porting of CUDA-based code, simplifying code migration. However, certain CUDA-based applications — especially those that are more complex — do not run with the same performance on AMD GPUs after being ported due to NVIDIA software optimizations that have not yet been replicated.

Recognizing the critical importance of the ecosystem to the company’s broader success, AMD continues to invest in enhancing its ROCm platform to appeal to more developers. At Advancing AI 2025, the company introduced ROCm 7, which promises to deliver stronger inference throughput and training performance compared to ROCm 6. Additionally, AMD announced that ROCm 7 supports distributed inference, which decouples the prefill and decode phases of inferencing to vastly reduce the cost of token generation, especially when applied to AI reasoning models. Minimizing the cost of token generation is key to maximizing customers’ revenue opportunity, especially those running high-volume workloads such as service providers.

 

In addition to distributed inference capabilities similar to those offered by NVIDIA Dynamo, AMD announced ROCm Enterprise AI, a machine learning operations (MLOps) and cluster management platform designed to support enterprise adoption of Instinct GPUs. ROCm Enterprise AI includes tools for model fine-tuning, Kubernetes integration and workflow management. The platform will rely heavily on software partnerships with companies like Red Hat and VMware to support the development of new, use-case- and industry-specific AI applications, and in stark contrast to NVIDIA AI Enterprise, ROCm Enterprise AI will be available free of charge. This pricing strategy is key in driving the development of ROCm applications and the adoption of the platform. However, customers may continue to be willing to pay for the maturity and breadth of NVIDIA AI Enterprise, especially as NVIDIA continues to invest in the expansion of its capabilities.

Partners advocate for the viability of AMD in the AI data center

Key strategic partners, including executives from Meta, Oracle and xAI, joined Su on stage during the event’s keynote, endorsing the company’s AI platforms. All three companies have deployed AMD Instinct GPUs and intend to deploy more as time goes on. These are effectively some of the largest players in the AI space, and their words underscore the value they see in AMD and the company’s approach of driving a more competitive ecosystem to accelerate AI innovation and reduce single-vendor lock-in.

 

However, perhaps the most noteworthy endorsement came from OpenAI CEO Sam Altman, who discussed how his company is working alongside AMD to design AMD’s next-generation GPUs, which will ultimately be employed to help support OpenAI’s infrastructure. While on stage, Altman also underscored the growing AI market with arguably the most ambitious, albeit somewhat self-serving, statement of the entire keynote: “Theoretically, at some point, you can see that a significant fraction of the power on Earth should be spent running AI compute.” It is safe to say that AMD would be pleased if this ends up being the case; however, for now, AMD is projecting the data center AI accelerator total addressable market will grow to greater than $500 billion by 2028, with inference representing a strong majority of AI workloads.

AMD has become the clear No. 2 leader in AI data center and is well positioned to take share from NVIDIA

AMD’s Advancing AI 2025 event served as a testament, reaffirming the company’s open-ecosystem-driven and cost-competitive AI strategy while also highlighting how far the company’s AI hardware portfolio has come over the last few years. However, while AMD’s commitment to an open software ecosystem and open industry standards is a strong differentiator for the company, it is also a major risk as it makes AMD’s success dependent on the performance of partners and consortium members. Nonetheless, TBR sees the reputation of AMD GPUs becoming more positive, but NVIDIA’s massive installed base and developer ecosystem make competing with the industry giant a significant feat.

Well-placed Investments in Emerging Tech Will Enable CGI to Accelerate Growth Long Term

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Acquisitions, being attentive to clients’ bottom-line demands, and implementing AI into IP are backbone of CGI’s “built to grow and last” strategy

On June 5, CGI hosted its Industry Analyst Summit. CEO Francois Boulanger and CGI Board of Directors Executive Chair Julie Godin commenced the meeting, detailing how CGI’s business culture, proximity model and decentralized approach, acquisitions and cocreation with clients are key to the company’s growth strategy. Throughout each session CGI leaders highlighted the company’s emphasis on meeting client objectives, providing flexibility and codeveloping solutions as necessary. Cocreating on projects not only delivers more relevant solutions to the client but also provides CGI with new intellectual property (IP) that it can bring to other clients.

 

Notably, CGI is leaning into its proximity model by acquiring more companies that build out the company’s footprint in metro markets. This is particularly evident with the purchases of U.S.-based Daugherty and Novatec. Other acquisitions such as Momentum Technologies and Apside expand the company’s local presence in Canada. Access to more markets across the U.S., Canada and Europe, alongside new client-led solutions, is broadening the company’s opportunities, particularly around AI-related projects. CGI has also enhanced its data and AI capabilities through the strategic acquisitions of Apside, Novatec and Aeyon.

 

CGI shared insights into its recent AI endeavors, including an example involving the deployment of an air gap solution for the North Atlantic Treaty Organization (NATO). For this project, CGI collaborated with NATO’s Allied Command Transformation in Norfolk, Va., to construct and tune models that accelerate the classification, editing and analysis of documents using the knowledge agent AI Felix. Outside client-led solutions, CGI is embedding AI across its existing portfolio to enhance delivery to clients across industries.

As CGI remains largely unaffected by DOGE, enhancements across the company’s public sector portfolio allow it to dig deep on federal deals

Stephanie Mango, president of CGI Federal, led an hourlong panel discussion with executives representing CGI’s U.S. Federal, Canadian and European public sector operations. Globally, CGI’s various government clients are encountering similar challenges associated with rising levels of economic and geopolitical uncertainties and governmentwide changes. Common across the company’s roster of government customers is the enduring demand for IT modernization. CGI is currently helping governments transform outdated legacy IT infrastructures, prioritize digital transformation initiatives, address talent shortages in cybersecurity and AI, adopt zero-trust security architectures, implement sovereign AI and cloud solutions, enhance the security and resilience of government supply chains, and protect critical public sector infrastructure.

 

TBR believes having such a broad swath of activities provides CGI’s public sector practices globally with case studies and success stories to showcase when pursuing new opportunities, talent with relevant experience that can be redeployed to new government markets, and solutions codeveloped with government clients highly relevant to public sector agencies elsewhere. A common go-to-market approach CGI employs across all public sector markets is to help government IT departments and IT decision makers retain a modernization mindset as the company firmly believes governments must view digital transformation as a long-term, multiyear strategy. TBR believes CGI also effectively leverages its client proximity approach to codevelop solutions with government clients and to optimize its agility in responding to fast-changing market dynamics.

 

In the U.S. federal market, where the arrival of the Trump administration and its Department of Government Efficiency (DOGE) has caused sectorwide upheaval, TBR believes CGI Federal is well positioned to capture a growing share of digital modernization work that we expect to accelerate, after the initial shock of billions of dollars in budget cuts and reallocations. Although CGI was included on DOGE’s initial hit list of consultancies under scrutiny, CGI Federal only generates 2% of its sales from “discrete consulting services,” which TBR assumes is a reference to the type of management or strategic consulting services most vulnerable to DOGE.

 

CGI Federal generates over 50% of its revenue from outcome-focused engagements, which are typically structured as fixed-price contracts. According to TBR’s Federal IT Services research practice, federal IT contractors can expect a general shift from cost-plus to fixed-price arrangements as agencies adopt a more outcome-focused mindset regarding new IT outlays. When the federal IT procurement environment begins focusing more on outcome-based contracting, it will shift more risk of cost-overruns or delivery delays to the vendors — a potentially margin-erosive scenario for federal system integrators (FSIs) that fail to maintain strong program execution.

 

CGI Federal is confident it can adapt to outcome-focused contracting in federal IT but is uncertain how quickly the transition can be completed. CGI Federal has been a perennial margin leader in TBR’s Federal IT Services Benchmark due to its traction with its ever-expanding suite of homespun IP-based offerings like Sunflower and Momentum, and demand for these offerings will at least endure, but likely increase, under DOGE.

 

TBR anticipates additional opportunities for CGI Federal will stem from its proprietary Sunflower (cloud-based asset management) and Momentum (financial management) solutions, as improving asset and financial management are among DOGE’s chief objectives and are in high demand by civilian and defense agencies looking to enhance fiscal and supply chain management, especially to comply with DOGE-related mandates.

 

CGI Federal has ongoing engagements that the company will showcase to win future federal work. For example, CGI Federal is implementing a cybersecurity shared services platform for the Department of Homeland Security (DHS), while the Department of Transportation’s use of the Momentum platform will serve as the case study for similar engagements across the federal civilian market.

 

In the Department of Defense, CGI Federal expects to leverage its fiscal and asset management offerings to capitalize on the recent mandate from Secretary of Defense Pete Hegseth that all U.S. service branches pass financial audits, and the company will cite its recent success on the U.S. Marine Corps Platform Integration Center (MCPIC) engagement to illustrate the full range of its capabilities. In the U.S. state government market, CGI leaders also mentioned that an unnamed state government had established its own version of DOGE with similar efficiency objectives and noted that other states are likely to follow suit, creating an expanding addressable market for the company’s asset and fiscal management platforms to prevent fraud, waste and abuse and to maximize operational transparency.

 

CGI Federal’s 2024 acquisition of Aeyon added process automation and AI capabilities that TBR believes will have high relevance for not only U.S. federal agencies but also state governments. The company also provides low-cost onshore managed services in the U.S. from delivery centers in Lebanon, Va., and Lafayette, La., staffed by 2,000 CGI professionals. Low-cost onshore delivery is also common across CGI’s public sector operations in Canada, but less so in Europe.

 

TBR believes CGI’s alliances with cloud hyperscalers (Amazon Web Services, Google and Microsoft), platform providers (Salesforce, SAP and ServiceNow) and others (UiPath, TrackLight and NetApp) will be key to its future success in not only the U.S. federal market but also public sector markets globally. These partners are also enablers of the company’s IP-focused solution strategy — as important as client-partners in developing new technologies and solutions.

 

CGI does not believe the advent of generative AI (GenAI) marks the beginning of the end for traditional IT services. Rather, CGI intends to leverage its expanding GenAI capabilities to migrate its public sector portfolio of offerings away from lower-value services and embrace higher-value offerings designed to maximize the value and potential of GenAI for public sector agencies. Higher-value services will require CGI to lean more heavily into its well-established proximity model as clients may need more guidance to fully reap the benefits of new offerings as capabilities become increasingly complex. In the long term, CGI may turn to more offshore resources as clients demand greater support.

BJSS provides short-run revenue relief but demonstrating AI competency to clients will be key

Vijay Srinivasan, president of U.S. Commercial and State Government operations, led the session on CGI’s banking segment by highlighting the company’s dedication to servicing clients long-term and holistically, providing flexibility to address clients’ objectives rather than focusing only on selling financial services solutions. Following opening remarks, CGI discussed recent trends and concerns in the sector supported by annual interviews of business and IT executives. First, as many banks strive for increased personalization, they demand AI and real-time capabilities on mobile applications. Unsurprisingly, banking clients are facing challenges deciphering market expectations, given the unpredictable nature of ongoing tariffs. In turn, banking clients are looking for new ways to generate revenue and maintain profitability. The banking industry, alongside many others, is experiencing a deterioration of institutional knowledge with retirements, fueling demand for AI tools.

 

As banks demand more AI tools and other new technologies, they need to modernize legacy IT systems, migration support, and application modernization. These modernization efforts also help banks execute on their cost-cutting initiatives. During the second half of 2024, CGI modernized a U.S. financial services company’s loan origination system with CGI Credit Studio and implemented its Trade360 platform for Bladex.

 

Despite the recent interest rate cuts made by the European Central Bank (four reductions thus far in 2025) and by the U.S. Federal Reserve (three reductions in 2H24), ongoing uncertainty is driving the need for streamlined processes enabling cost efficiency. CGI shared an example where the company supported a Canadian bank to optimize over 110 core applications, many of which were running on legacy systems. CGI was able to reduce the bank’s run costs by more than 35% year-to-year. Although the transformation began eight years ago, CGI has a long-standing relationship with the client, and the deal serves as a blueprint for similar contracts in the industry. Leading digital transformation efforts that support bottom-line initiatives is particularly important in the current environment.

 

Although the financial services sector is experiencing ongoing volatility, the sector and the manufacturing, retail and distribution sector are roughly equal contributors to CGI’s overall revenue. Finding new revenue opportunities and honing strategy within the segment will be vital to sustaining growth. Many IT services companies, including CGI, experienced revenue decline in their financial services sector in 2024, CGI’s financial services revenue declined in 1Q24, 2Q24 and 3Q24 before increasing by low-single digits in 4Q24.

 

In January 2025 CGI completed the acquisition of BJSS, a U.K.-based engineering and technology consultancy with industry expertise in financial services. The acquisition contributed to 8.6% year-to-year growth in the sector. CGI is not the only company prioritizing acquisitions that boost struggling verticals. Accenture recently purchased U.K.-based Altus Consulting, which will improve digital transformation capabilities in the financial services and insurance industries. Accenture experienced similar segment revenue growth declines as CGI in the first half of 2024. TBR believes BJSS will have a meaningful impact on revenue in the short run, but CGI may need to be more persistent with adding new solutions. Although introducing AI capabilities enhances client experience, it may not signal AI competency in the same way as new solutions. CGI may benefit from using acquisitions and more portfolio investments, similar to its investments in the public sector, to foster organic growth.

 

TBR believes CGI’s coinnovation with clients will create new opportunities tailored to industry needs; however, at the same time, other vendors in the past year have been leveraging partnerships to expand market share and provide industry-specific solutions. For example, Cognizant and ServiceNow expanded their partnership to reach midmarket banking clients, and Accenture is collaborating with S&P Global to jointly pursue financial services clients. Joint offerings may motivate clients to invest in these solutions rather than only implementing AI into existing solutions.

 

CGI illustrated how BJSS adds value to the company’s capabilities in its banking vertical in the U.K., specifically related to end-to-end services and product deployment. BJSS’ emphasis on meeting client goals made it a strong cultural fit for CGI. The acquisition came six months after the purchase of Celero’s Canadian credit union servicing business, which deepened CGI’s reach in Canada. These recent acquisitions, alongside recent interest rate cuts and continued additions of AI capabilities in banking solutions, position CGI well for strong performance in the sector. Further, in the company’s most recent earnings call, Boulanger announced the company is seeing “early signs in quarter two of renewed client spending in the banking sector.”

Adaptability with manufacturing clients provides deal opportunities even in a challenging environment

After the public sector, the financial services and the manufacturing, retail and distribution sectors are CGI’s next-largest revenue contributors, according to company-reported data. Similar to financial services, revenue growth in the manufacturing, retail and distribution sector was also volatile throughout 2024. Manufacturing clients will continue to experience a challenging environment with tariffs also contributing to uncertainty. During the industry session, CGI leaders discussed the increased importance of supply chain resiliency, stating that clients are seeking alignment with the company’s talent, data and technology. Investments to improve resiliency, such as in data-sharing ecosystems and capacity management, will be vital for clients, serving as a revenue opportunity for CGI.

 

To capture more revenue opportunities, CGI is completing acquisitions that bolster its standing in manufacturing, similar to recent purchases made to expand in financial services. Although CGI leaders did not directly discuss it during the session, the company’s recent purchase of Novatec expands CGI’s reach into the manufacturing sector in Germany and Spain, specifically in the automotive industry. The acquisition brings capabilities in digital strategy, digital product development and cloud-based solutions, which will help CGI with growing demand for supply chain resiliency. Further, manufacturing sectors are beginning to experience the effects of knowledge loss associated with large numbers of retirements. Increased automation in the sector will help close gaps. CGI is investing in implementing AI across its manufacturing portfolio, as well as the entirety of the business.

 

CGI is finding its clients are at different places in their digital journey, and the divide is only increasing. To address this gap, CGI will need to lean into its adaptable nature to meet each client’s needs. CGI included two examples to demonstrate the company’s approach. CGI highlighted a key deal with the Volkswagen Group around digitization, where the two companies jointly created a governance model and collaborated on Agile DevOps. The two formed a new entity, known as MARV1N, a unit that will provide the group with the necessary development support for digitalization projects. Additionally, CGI modernized the group’s legacy systems while developing new IT systems designed to cut operation expenses. The example from the session emphasizes one of CGI’s main themes of the summit: helping clients holistically, specifically around providing meaningful outcomes that improve clients’ bottom line.

 

Similarly, CGI developed and is managing Michelin’s supply chain and planning production manufacturing, underpinning the client’s Customer Experience and Services & Solutions focus areas. CGI was able to increase supply chain resiliency by enabling inventory prediction and implementing AI and business performance monitoring. CGI also supported Michelin with a machine learning project. The collaboration reflects CGI’s mission to increase automation to improve productivity and enhance supply chain resiliency. In contrast, the demand for AI comes mainly from intrigue in manufacturing, rather than leveraging it to boost productivity. TBR believes it will become important for CGI to signal to manufacturing clients how AI tools can help boost productivity, which is what CGI did recently in an engagement with Rio Tinto. CGI deployed AI tools to help Rio Tinto reduce production breakdowns, helping the client capture additional revenue.

As CGI’s proximity model and ideology provide longevity, investing in the right next-generation technology will position the company competitively

CGI’s focus on cocreation, infusing AI into its IP, and recent acquisitions has fueled revenue growth that is currently outpacing most other IT service vendors, largely due to its robust acquisition pace that is surpassing that of its peers, many of which are prioritizing smaller acquisitions with specialized capabilities. Additionally, as concerns of a recession rise, other IT service companies are turning their attention to startups. For example, Accenture has been ramping up its investments in startups, recently investing in AI prediction company Aaru and Voltron Data, which has GPU-powered data processing capabilities.

 

Similarly, Capgemini is collaborating with ISAI, a France-based tech entrepreneurs’ fund, launching ISAI Cap Venture II centered on investing in B2B startups. Although CGI made brief mentions of its startup framework, CGI Unicorn Academy, and discussed its AI-powered service delivery approach, CGI DigiOps, the company has not made many public announcements about investments or new initiatives. Capturing new technology, especially amid economic uncertainty, could help CGI secure a competitive edge on future revenue opportunities.

 

In CGI’s FY2025, which ends in September, CGI is likely to maintain its M&A pace. Although acquisitions may help CGI gain an edge over its peers, especially if the targets are well aligned culturally and able to significantly widen CGI’s reach into metro markets, the accelerated revenue growth will need to be coupled with AI investments that signal productivity improvements to maintain momentum in the long term so that CGI can attract more clients based on its innovation capabilities. However, TBR anticipates CGI will continue to expand revenue faster than its peers during its fiscal year, likely growing 5.0% in Canadian dollars and 1.2% in U.S. dollars. Nevertheless, the event reinforced CGI’s reputable strength: forming strong, in-depth, long-term relationships with its clients.

EY Reinvents Its People Advisory Services, Leaning on a Single Methodology to Drive Successful Change

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In late April, TBR visited with EY’s People Advisory Services (PAS) team at the firm’s Boston office. Rapid changes in the HR role, along with the need to effectively manage the workforce amid ongoing transformation and increased technology adoption, have driven greater investment in the function and a need to effectively manage the changes. The discussion centered on how these external drivers led to changes in EY’s services. First was a thorough review of the global EY Change Experience (ChX) method, which is an updated, data-driven change management approach that focuses on achieving business outcomes through behavior change. Second was a preview of EY’s CHRO (chief human resources officer) 2030 study, which was published in early June and emphasizes the need for talent readiness and business focus.

Transformation within EY’s PAS

Starting off the discussion, Randy Beck, EY’s Global Organization and People leader, spoke at length about the major market priorities and activities that have been the focus in 2025 to provide leading methodologies and thought leadership to their clients. EY’s PAS guides client workforce strategies, impacting people experience, organization and workforce transformation, HR transformation, rewards and people transactions, and people mobility.

 

A key area of emphasis was updating the change management service offering to align with market needs. This year, EY implemented a single global, modernized change management methodology, moving away from the over 33 different methodologies previously used across PAS engagements. This unified methodology distinguishes EY from its competitors, enhances global consistency, improves the employee experience, and ensures that clients’ transformations through PAS are more successful and enduring. The methodology seeks to create a data-driven, proactive rather than reactive approach to change, enabling clients to prepare and adjust to the transformation turning points. As part of the launch and to support consistency, EY retrained 2,600 employees in the practice across 60-plus countries using e-learning to recertify its staff. This mandatory training ensures EY’s practitioners will follow the same methodology moving forward.

 

In structuring the methodology, EY sought to embrace modularity and scalability, enabling the company to meet clients at their current maturity point and prepare them for future changes. EY consultants collaborate with clients as change management solution architects to design suitable project approaches, utilizing appropriate tools and technologies to address their requirements.

 

EY sets itself apart from its peers through the methodology, backing its transformation with data and technology and addressing the people side of organizational change. In the methodology, EY calls out Meaning, Empowerment and Growth as the change conditions, or guiding principles, which are applied at the individual, team and organization levels throughout a project to make change stick. Each project approach is also centered on delivering change components under the four change pillars: leadership, engagement, confidence and proficiency.

 

To align with the company’s overall vision and better guide change, EY ensures that members of clients’ leadership teams are in position to guide the transformation. Throughout the engagement, EY provides resources and training for clients, enabling them to support and uphold their transformations. Fostering confidence using data, metrics and established governance exemplifies the need for change and encourages support across the organization. Lastly, the need for skilled individuals to lead and uphold change highlights the importance of ongoing skills development, underscoring the pillar of proficiency.

 

EY shared six additional practices that differentiate the company in the market. One key feature that practice EY leaders demonstrated to TBR was the Network Analysis tool, which plays a critical role in driving effective organizational change. The tool maps trusted networks within the organization and identifies influential leaders, enabling them to champion change and help ensure it takes hold.

 

The development of the Modernization Change Experience methodology reflects EY’s PAS practicewide commitment to a more modular, proactive and people-centric approach to change. Using the platform, EY seeks to better guide change for its clients and establish “change as a muscle,” enabling the company to be proactive and a part of clients’ normal operations. While acknowledging that change is necessary, EY also recognizes that change can be personal, highlighting the importance of change as an experience that fully engages client talent to make the transformation more successful. Further, the platform drives the value of outcomes, reflecting an industrywide shift toward outcomes-based engagements and risk-sharing on projects.

Conclusion

As workforce and employee experience grow increasingly critical in the era of rapid technological advancement, EY’s refreshed approach within PAS — centered on a unified methodology and a stronger focus on people experience — helps distinguish the firm from its peers and better aligns with technology-driven transformation initiatives. Further, taking a global approach to retraining and methodology creates a more unified approach within the firm to better engage with clients and navigate market change.

 

EY has structured its portfolio to meet clients where they are in their transformation journey, delivering solutions that empower them to embrace change and lead their own initiatives effectively. Integrating experience and continuous change into people advisory and workforce transformation strengthens EY’s competitive edge while enabling clients to sustain long-term progress, anchored by technology.

AI & Data Sovereignty in Technology Partnerships and Alliances

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Watch Now: AI & Data Sovereignty in Technology Partnerships and Alliances

 

Commercial Model Alignment Begins to Trump Technology Integration

In this TBR Insights Live session Principal Analyst Boz Hristov and Senior Analyst Catie Merrill discuss AI and data sovereignty in technology partnerships and alliances. Additionally, TBR’s team examines how the intersection of regional regulations and emerging AI capabilities is reshaping partner ecosystems.

 

As governments and enterprises demand greater control over data, global systems integrators (GSIs) are increasingly relying on locally based employees to meet sovereignty requirements, ensure compliance and build trust. Boz and Catie explore how this shift is influencing partner strategies, resourcing models and AI deployment approaches across regions. They also dive into the commercial implications for technology vendors and GSIs, as aligning commercial models is becoming just as critical as technical integration.

 

The session below on alignment with GSIs includes:

  • An exclusive look at our newly expanded regional breakdown of GSI headcount and revenue, part of TBR’s Cloud Ecosystem Report, and what the data reveals about hyperscaler practices in the Americas, EMEA and APAC
  • A look at how European Union AI and data regulations are impacting staffing and training within GSI practices
  • An overview of our new ServiceNow Ecosystem Report and its implications for partners and alliances
  • Key insights from our Voice of the Partner research, including what’s next in AI ecosystem management and multiparty collaboration
  • A discussion on the increasing importance of commercial model alignment over technology integration and how ServiceNow is moving into the core enterprise SaaS market among the likes of SAP, Salesforce, Workday, Adobe and others

 

Watch now

 

Excerpt from AI & Data Sovereignty in Technology Partnerships and Alliances

Cloud and services vendors think similarly about multiparty alliances, creating opportunity to convince OEMs through engaging with common partners

“The complexity of the ecosystem … forced you then to think about a different model, which was called triparty … No one’s going to turn away revenue … However, the end of the day, the KPI that drove success was making sure that we were driving 3x to 4x services revenue.” — Global Alliance Leader, Cloud

TBR Insights Live preview: AI & Data Sovereignty in Technology Alliances and Partnerships

Visit this link to download this session’s presentation deck here.

TBR Insights Live sessions are held typically on Thursdays at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. Previous sessions can be viewed anytime on TBR’s Webinar Portal.

 

 

AI Inferencing Takes Center Stage at Red Hat Summit 2025

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In late May, Red Hat welcomed thousands of developers, IT decision makers and partners to its annual Red Hat Summit at the Boston Convention and Exhibition Center (BCEC). Like the rest of the market, Red Hat has pivoted around AI inferencing, and this conference marked the company’s entry into the market with the productization of vLLM, the open-source project that has been shaping AI model execution over the past two years. Though Red Hat’s push into AI inferencing does not necessarily suggest a deemphasis on model alignment use cases (e.g., fine-tuning, distillation), which was the company’s big strategic focus last year, it is a recognition that AI inferencing is a production environment and that the process of running models to generate responses is where the business value lies. Red Hat’s ability to embed open-source innovation within its products and lower the cost per model token presents a sizable opportunity. Interestingly, Red Hat’s prospects are also evolving in more traditional markets. For instance, Red Hat’s virtualization customer base has tripled over the past year, with virtualization emerging as a strategic driver throughout the company’s broader business, including for communication service providers (CSPs) adopting virtualized RAN and within other domains such as their IT stacks and the mobile core.

Red Hat pivots around AI inferencing

Rooted in Linux, the basis of OpenShift, Red Hat has always had a unique ability to resolution assets to expand into new markets and use cases. Of course, AI is the most relevant example, and two years ago, Red Hat formally entered the market with Red Hat Enterprise Linux (RHEL) AI — the tool Red Hat uses to engage AI developers — and OpenShift AI, for model lifecycle management and MLOps (machine learning operations) at scale. These assets have made up the Red Hat AI platform, but at the Red Hat Summit, the company introduced a third component with AI Inference Server, in addition to new partnerships and integrations further designed to make agentic AI and inferencing realities within the enterprise.

 

AI and generative AI (GenAI) are rapidly evolving, but the associated core challenges and adoption barriers, including the high cost of AI models and the sometimes arduous nature of providing business context, remain largely unchanged. Between IBM’s small language models (SLMs) and Red Hat’s focus on reducing alignment complexity, both companies have crafted a strategy focused on addressing these challenges; they aim not to develop the next big AI algorithm, but rather to serve tangible enterprise use cases in both the cloud and the data center.

 

Everyone is aware of Red Hat’s track record of delivering enterprise-grade open-source innovation, and if Red Hat’s disruption with Linux over two decades ago is any indication, the company is well positioned to make real, cost-effective solutions for the enterprise based on reasoning models and AI inferencing.

Red Hat productizes vLLM to mark entry into AI inferencing

Though perhaps lesser known, most large language models (LLMs) today are leveraging vLLM, an upstream open-source project boasting roughly half a million downloads in any given week. At its core, vLLM is an inference server that helps address “inference-time scaling,” or the budding notion that the longer the model runs or “thinks,” the better the result will be. Of course, the challenge with this approach is the cost of running the model for a longer period of time, but vLLM’s single-server architecture is designed to optimize GPU utilization, ultimately reducing the cost per token of the AI model. Various industry leaders — namely NVIDIA, despite having its own AI model serving stack; Google; and Neural Magic, which Red Hat acquired earlier this year — are leading contributors to the project.

 

Leveraging its rich history of turning open-source projects into enterprise products, Red Hat launched AI Inference Server, based on vLLM, marking Red Hat’s first offering from the Neural Magic acquisition. AI Inference Server is included with both RHEL AI and OpenShift AI but can also run as its own stand-alone server. Though perhaps inclined to emphasize IBM’s watsonx models, Red Hat is extending its values of flexibility, choice and meeting customers where they are to AI Inference Server. This new offering supports accelerators outside IBM, including NVIDIA, AMD, Intel, Amazon Web Services (AWS) and Google Cloud, and offers Day 0 support for a range of LLMs. This means that as soon as a new model is released, Red Hat works with the provider to optimize the model for vLLM and validate it on Red Hat’s platform.

 

Building on vLLM’s early success, Red Hat launched LLM-d, a new open-source project, announced at the Red Hat Summit. LLM-d transcends vLLM’s single-server architecture, allowing inference to run in a distributed manner, further reducing the cost per token. Due to the cost, most will agree that inferencing will necessitate distributed infrastructure, and there are several recent examples across the tech landscape that have alluded to this. LLM-d is being launched with support from many of vLLM’s same contributors, including NVIDIA and Google (LLM-d runs on both GPUs and TPUs [tensor processing units]).

Partnership with Meta around MCP is all about empowering developers and making agentic AI enterprise-ready

If Google’s launch of A2A (Agent2Agent) protocol is any indication, Anthropic’s Model Context Protocol (MCP), which aims to standardize how LLMs discern context, is gaining traction. At the Red Hat Summit, Red Hat committed to MCP by announcing it will deliver Meta’s Llama Stack, integrated with MCP, in OpenShift AI and RHEL AI.

 

To be clear, Red Hat supports a range of models, but Meta went the open-source route early on, bringing Llama Stack, an open-source framework for building specifically on Llama models, into the Red Hat environment. This not only exposes Red Hat to another ecosystem but also provides APIs around it. Enlisting Meta at the API layer is an important aspect of this solution, as it enables customers to consume the solution and build new agentic applications with MCP playing a key role in contextualizing those applications within the AI enterprise. It is still early days for MCP, and making the protocol truly relevant in enterprise use cases will take some time and advancement in security and governance. But Red Hat indirectly supporting MCP within its products signals the framework’s potential and Red Hat’s role in bringing it to the enterprise.

Who would have thought we would be discussing virtualization in 2025?

In 2025 and the world of AI, you don’t often hear of a company putting virtualization at the top of its strategic imperatives list. However, everyone has seen how Broadcom’s takeover of VMware has caused a ripple in the market, with customers seeking cheaper, more flexible alternatives that will not disrupt their current cloud transformation journeys. In fact, when we surveyed enterprise IT decision makers, 42% of respondents indicated they still intend to use VMware, but most plan to do so in a reduced capacity. Of those planning to continue using VMware, a notable 83% are still evaluating other options*.

 

“Options both have increased the prices across the board, 20% to 30%, which is pretty significant. So, you could say myself and my peers are not very happy with the Broadcom method on that, and we’re looking at, you know, definitely options to migrate off VMware when possible. We’re definitely looking at Citrix, and then options from Red Hat and Microsoft.” — CTO Portfolio Manager, Consumer Packaged Goods

 

As a reminder, after Red Hat revolutionized Linux in the early 2000s, the company’s next big endeavor was virtualization. With the rise of cloud-native architectures, Red Hat quickly pivoted around containers, and this is where the company remains most relevant today. However, through the KVM (kernel-based virtual machine) hypervisor, which would eventually be integrated with OpenShift, virtualization has always been a part of the portfolio. Over the past year, given the opportunity surrounding the VMware customer base, Red Hat has actively revisited its virtualization roots in a few primary ways.

 

First, given the risky nature of switching virtualization platforms, Red Hat crafted a portfolio of high-touch services around OpenShift Virtualization, including Migration Factory and a fixed-price offering called Virtualization Migration Assessment. These services from Red Hat Consulting, which are offered in close alignment with global systems integrator (GSI) partners, help customers migrate virtual machines (VMs) as quickly as possible while minimizing risk, which largely stems from helping customers migrate VMs before modernizing them.

 

Secondly, Red Hat has focused on increasing public cloud support. Red Hat announced at the summit that OpenShift Virtualization is now available on Microsoft Azure, Google Cloud and Oracle Cloud Infrastructure (OCI), in addition to previously announced support for IBM Cloud and AWS, officially making the platform available on all major public clouds. Making OpenShift Virtualization applicable across the entire cloud ecosystem reinforces how serious Red Hat is about capturing these virtualization opportunities. These integrations will make it easier for customers to use their existing cloud spend commitments to offload VMware workloads to any cloud of their choice while maintaining the same cloud-native experience they are used to.

 

Of course, there will always be a level of overlap between Red Hat and the hyperscalers, but ultimately the hyperscalers recognize Red Hat’s role in addressing the hybrid reality and enterprises’ need to move workloads consistently across clouds and within data centers, and they welcome a more feature-rich platform like OpenShift that will spin the meter on their infrastructure.

With virtualization, Red Hat is allowing partners to sell infrastructure modernization and AI as part of the same story

At the conference, we heard from established Red Hat customers that have extended their Linux and container investments to virtualization. Examples included Ford and Emirates NBD, which has over 37,000 containers in production and is now migrating 9,000 VMs to Red Hat OpenShift Virtualization for a more consistent tech stack. Based on our conversations with customers, these scenarios — where VMs and containers run side by side — are not an easy sell and require a level of buy-in across the organization.

 

That said, if customers can overcome some of these change management hurdles, this side-by-side approach can offer numerous benefits, largely by creating greater consistency between legacy and cloud-native applications without significant refactoring. Though some GSIs may be better suited to the infrastructure layer than others, partners should recognize the opportunity to use OpenShift Virtualization to have client discussions around broader AI transformations. One of the compelling aspects of Red Hat is that even as it progressed through different phases — Linux, virtualization, containers and now AI — the hybrid platform foundation has remained unchanged. If customers can modernize their infrastructure on the same platform, introducing AI models via OpenShift AI becomes much more compelling.

Virtualization remains a key driver of telecom operator uptake of Red Hat solutions, but AI presents a significant upsell opportunity

Over the past few years, Red Hat has leveraged its virtualization technology in the CSP market, making significant progress in landing new CSP accounts and expanding its account share within this unique vertical. The company’s growth in this market has been aided by factors such as Broadcom’s acquisition of VMware, which initially caused a wave of CSPs to migrate to Red Hat due to the uncertainty surrounding VMware’s portfolio road map. Broadcom’s price hikes are causing a second wave of switching that TBR anticipates will continue for several years.

 

However, Red Hat has also succeeded in more deeply penetrating the telecom vertical due to its savvy marketing, which at times emphasizes that its solutions are “carrier-grade,” along with persistent efforts to raise awareness within the CIO and CTO organizations of CSPs that virtualization and hybrid multicloud strategies will have significant ROI for CSPs. This has led to strong adoption of Red Hat OpenStack and OpenShift, although the Ansible automation platform has lagged in terms of CSP adoption, as this customer segment prefers to use the free, open-source version of Ansible.

 

As CSPs iterate on their AI strategies, Red Hat has the opportunity to play a significant role, including with its new Red Hat Inference Server, as CSPs increasingly embrace edge compute investments. CSPs need to invest upfront to capitalize on the cost efficiency and revenue generation opportunities offered by AI, and Red Hat can help guide them in this direction. CSPs have difficulty moving quickly when new, disruptive technologies emerge, and, with AI specifically, have trouble evaluating and testing AI models themselves due to a lack of in-house expertise. Additionally, they feel constrained by regulations and are concerned about compromising data privacy. Red Hat’s dedicated telecom vertical services can help alleviate these concerns and accelerate CSPs’ investments in AI infrastructure.

Final thoughts

Based on our best estimate, roughly 85% of AI’s current use is focused on training and only 15% on inferencing, but the inverse could be true in the not-too-distant future. Not only that, but AI inferencing will likely occur at distributed locations for the purposes of latency and scale — which, due to its hybrid platform and ability to help customers “write once, deploy anywhere,” remains core to Red Hat’s value proposition. That is one of the compelling aspects of a platform-first approach; even as new components such as AI models are introduced, the core foundation remains unchanged.

 

Though all of Red Hat’s new innovations, including AI Inference Server and the LLM-d project, do not necessarily suggest a deemphasis on model alignment with assets like InstructLab, it is clear Red Hat is pivoting to address the inference opportunity. With its trusted experience productizing open-source innovation and its ability to exist within a broad technology ecosystem of hyperscalers, OEMs and chip providers, Red Hat is in a somewhat unique position to help transition AI inference from an ideal to an enterprise reality.

 

Further, Red Hat’s virtualization prospects are growing, as TBR’s interactions with customers continue to indicate that they are looking for new alternatives. If the hyperscalers’ recent earnings reports are any indication, the GenAI hype is waning, and we suspect many enterprises will refocus on infrastructure modernization to ultimately move beyond basic chatbots and lay the groundwork for the more strategic applications that inferencing will enable. It will be interesting to see how Red Hat capitalizes on new virtualization opportunities with its hyperscaler and services partners as part of a joint effort to bring customers to a modern platform, where VMs and containers can coexist and drive discussions around AI.

 

*From TBR’s 2H25 IT Infrastructure Customer Research