Data Quality & Governance Pillars, and Ecosystem-led Approach Mark Informatica’s Entry Into Agentic AI

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Building on last year’s theme of modernization, where Informatica highlighted innovations to fast-track migrations from legacy PowerCenter and Master Data Management (MDM) to Informatica Data Management Cloud (IDMC) in the cloud — accounting for over half of Informatica’s business — Informatica World 2025 in Las Vegas was all about agentic AI, and the crucial, yet still sometimes overlooked, role of data. With its ability to apply reasoning to handle more complex, multipart workflows, agentic AI has rapidly emerged as AI’s next frontier. Although agentic AI promises increased productivity, AI agents require a few key elements, including orchestration, a vast knowledge base and governance. With the wealth of metadata in CLAIRE, the AI engine powering IDMC, it was only a matter of time until Informatica used some of its core differentiators to push into the agentic AI space to not only craft a future for more autonomous data management but also to give customers the tools needed to build and orchestrate their own agents.

 

Informatica enters agentic AI race

Informatica employs two strategies relative to generative AI (GenAI): Informatica for GenAI, in which customers use IDMC’s data management capabilities to enable enterprises’ GenAI use cases; and GenAI from Informatica, where customers leverage Informatica’s GenAI offerings. Those products include CLAIRE Copilot, which entered general availability at the event, and CLAIRE GPT, which is used by over 550 clients to streamline tasks within IDMC such as pulling datasets and interacting with catalogs. On the annual conference’s 25th anniversary, Informatica formally entered the agentic AI space with a similar approach, giving customers the ability to consume AI agents within IDMC for more autonomous data management and a tool for letting customers build, manage and orchestrate their own AI agents.

  • CLAIRE Agents: As part of the GenAI from Informatica strategy, Informatica introduced eight new agents to support tasks across the data life cycle. The agents, which are expected to begin preview in 2H25, are Data Quality, Data Discovery, Data Lineage, Data Ingestion, ETL [Extract, Transform Load], Modernization, Product Experience and Data Exploration. Architecturally speaking, these agents will round out the IDMC platform, sitting above the metadata system of intelligence, with CLAIRE Copilot and GPT acting as user experience (UX) overlays, where customers can interact with these agents.

Nearly every facet of IT has emerged as a prominent use case for GenAI, including data management, and customers are looking for ways to streamline more system-level tasks. Provided customers are prepared to move from manual — or even predictive and conversational AI engineering — to agentic AI, these new data management agents can help absorb a lot of back-end data management tasks, including developing the data pipelines and reducing some of the burden on the user, whose primary focus now becomes managing the agents.

 

  • AI Agent Engineering: In agentic AI, the hyperscalers and SaaS vendors are racing to position as the AI control tower. As more vendors push into the PaaS space and the resulting AI agents convolute the applications layer, the question becomes, “Which set of vendors are positioned to abstract that complexity in a governed way?” At the event, Informatica entered the space with the introduction of AI Agent Engineering, a new tool to help users build their own agents using the popular low-code/no-code drag-and-drop experience. Additionally, AI Agent Hub, which acts as a marketplace within AI Agent Engineering, helps users find, manage and connect these agents, including not just Informatica’s CLAIRE agents but also the tools customers are already using to build agents, such as Amazon Bedrock, Azure OpenAI, Google Vertex and Salesforce’s Agentforce. When it comes to building and orchestrating AI agents, customers have a range of options, but one of the compelling things about Informatica entering this space is its ability to provide the federated governance and access controls around these agents without disrupting existing workflows. Governance remains one of the leading barriers to GenAI adoption, and while some overlap will always exist between the hyperscalers and data ISVs, the hyperscalers recognize Informatica’s reputation for helping customers build trust in their data and ability to apply that trust in a vendor-agnostic way.

 

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Ecosystem developments

As we often discuss, Informatica maintains a high degree of neutrality and can effectively work across a range of technology partners without introducing significant overlap. Maintaining its commitment to working within the technology ecosystem, Informatica announced new product integrations across its technology partners, including the following highlights.

  • Microsoft: Microsoft’s play at the PaaS layer (e.g., Synapse, Power Platform) and ability to extend the Dynamics 365 data model to enable Customer 360 analytics make it an invaluable, somewhat unique partner to Informatica. Reaffirming Informatica’s commitment to Microsoft, CLAIRE Copilot was built using the Azure OpenAI Service. The launch of Microsoft Fabric last year seemed to mark a turning point in the alliance, as Informatica was granted status as an early design partner for Fabric, which has amassed 21,000 paid customers in the span of 18 months. Essentially, this status allows Informatica to make its Data Quality tool available as a native service, so customers can profile and assess data using Informatica as it gets ingested into Microsoft Fabric via the OneLake repository in real time. At the event, Informatica made Data Quality available (in public preview) as its own Fabric application. In addition, as part of its commitment to staying relevant within the Microsoft Fabric ecosystem, Informatica will start supporting Apache Iceberg in Microsoft Fabric, which is important as Microsoft looks to cement its commitment to open standards. These developments come as part of a new strategic agreement between Informatica and Microsoft, which implies not just a focus on R&D but also investment in the joint go-to-market approach. Having Informatica exist as a first-class citizen within the Microsoft stack could make the case for customers to explore other components of IDMC, creating deeper synergies with services partners like KPMG that use Informatica and Microsoft Fabric, both internally and externally for data modernization and transformation.
  • Salesforce*: Though Informatica and Salesforce technically had a preexisting alliance, the partnership was formalized at Informatica World 2025 with the announcement that IDMC will be integrated with Salesforce’s Agentforce. Specifically, Informatica plans to deliver MDM SaaS with Agentforce, effectively putting the 360-degree wrapper around agents that customers build in Salesforce’s platform. As previously mentioned, customers will also be able consume Agentforce via Informatica AI Agent Engineering upon availability later this year. Salesforce sees Informatica as a key player in the market and is looking to strengthen its play in data management and governance in accordance with Agentforce, so this partnership is a win for Salesforce. In turn, Informatica seems to recognize the role Agentforce will play in the AI ecosystem for sales and service use cases, and it will be interesting to see how this partnership progresses and if Salesforce ends up joining Informatica’s seven other, more established technology partners.

On the services side, Informatica continues to cement its value across nine core global systems integrator (GSI) partners, which collectively staff 30,000 Informatica professionals. In 2024, Informatica earned 15,000 certifications, up over 20% year-to-year. Vendor sentiment and our own conversations with enterprise IT decision makers suggest that for AI to effectively scale, data needs to be in the cloud. As such, modernization will continue to be a big focus for Informatica and its partners through 2025. This includes AI-powered modernization and potentially using the new CLAIRE Agents, specifically Modernization, to help migrate on-premises data to IDMC. When it comes to agentic AI, Informatica’s new innovations should open new doors for services partners to not only modernize data management tasks ahead of GenAI deployments but also help clients create new custom agents (using AI Agent Engineering), including those tailored to certain industries, and make them relevant within existing workflows.

 

Between the technology partners and GSIs, Informatica works with a robust ecosystem of partners in a triparty approach, where resources from a hyperscaler, GSI and Informatica are brought together to help customers modernize their data faster and, by default, hasten AI’s time to value. When we survey and speak to alliance decision makers at IT services firms, data management comes up as one of the top areas for partner-led growth, signaling to the ecosystem that they will continue to invest in resources to guide conversations with customers with the technology maturity to address the data foundations ahead of GenAI.

Conclusion

Agentic AI has a lot of promise but also some challenges. The proliferation of AI agents will create more best-of-breed complexity — which we know customers are trying to move away from — and heighten concerns around data privacy and governance. Informatica’s move into the agentic AI space with both CLAIRE Agents and AI Agent Engineering is certainly in step with the market; we all know AI agents do not exist in silos, so Informatica’s ability to work within its ecosystem of tech partners and connect agents in a vendor-neutral way is particularly compelling. Meanwhile, Informatica’s robust engineering relationships with the hyperscalers, as evidenced by Informatica’s Data Quality integration with Microsoft Fabric, will continue to elevate its standing with the big GSIs and foster a compelling triparty alliance approach focused on helping customers get their data ready for AI.

*After Informatica World, on May 27, Informatica entered into an agreement to be acquired by Salesforce. Informatica will continue to operate as a stand-alone entity until the acquisition closes, likely in Salesforce’s FY27. Please see TBR’s Salesforce coverage for further insights.

DOGE Federal IT Vendor Impact Series: Booz Allen Hamilton

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The Trump administration and its Department of Government Efficiency (DOGE) have generated massive upheaval across the board in federal operations, including in the federal IT segment. As of May 2025, thousands of contracts described by DOGE as “non-mission critical” have been canceled, including some across the federal IT and professional services landscape. TBR’s DOGE Federal IT Vendor Impact Series explores vendor-specific DOGE-related developments and impacts on earnings performance. Click here to receive upcoming series blogs in your inbox as soon as they’ve published.

 

BAH finished strong in FY25, but DOGE will create a significant headwind to overall sales growth in FY26

Booz Allen Hamilton (BAH) CEO Horatio Rozanski said during BAH’s 1Q25 and FY25 earnings review on May 23, “All presidential transitions create some degree of near-term disruption followed by opportunity.” Evidence of near-term disruption from DOGE was apparent in BAH’s 1Q25 fiscal results, despite the company’s record revenue, strong profitability, and robust book of business to end FY25 and close out the company’s VoLT (Velocity, Leadership and Technology) growth strategy.
 
VoLT has been an unprecedented success for BAH, driving three consecutive years of double-digit top-line growth; steadily improving profitability; and expanding backlog, which rose from $28 billion to begin FY23 (VoLT’s first year) to $37 billion to end FY25. BAH must now leverage the strong fiscal and operational foundation created by VoLT to successfully navigate a fast-changing federal IT landscape, mitigate the impacts of DOGE’s program cancellations on its business, and position itself to capture the longer-term opportunities that will eventually arise due to the Trump administration’s pledge to lean heavily on digital technologies to increase efficiencies across the federal government and digitally reimagine agency missions.

DOGE will upend BAH’s civilian business in FY26

In FY26, which began April 1, BAH will have to contend with budget cuts, funding delays and organizational restructuring (including significant headcount reductions) by its customers, particularly its civilian agency clients, where business development, procurement and project delivery cycles have slowed. The company has also seen the volume of award activity in the civilian market decline sharply in 1Q25, with further deceleration expected throughout FY1H26.
 
According to TBR’s 1Q25 Booz Allen Hamilton Earnings Response, “the volume of disclosed deal activity plummeted in 4Q24 and 1Q25, a harbinger of tough times ahead for federal IT’s most venerable advisory-led firm.” BAH’s civilian unit also disclosed only a single award in 4Q24 and 1Q25. BAH’s executives indicated that several of its largest civilian IT engagements have been reviewed by DOGE , and the company does not anticipate any cancellations, drawdowns or disruptions to project delivery. However, BAH also noted that five ongoing, large-scale IT programs in the civilian sector have been scaled back due to DOGE’s actions to curb certain agencies’ spending, including a major recompete lost at the Department of Veterans Affairs (VA).
 
Year-to-year top-line growth in BAH’s Civil group has decelerated following 13 consecutive quarters of double-digit growth from 3Q21 through 3Q24. Sales expansion in the firm’s Civil unit fell from 16.1% in 3Q24 to 7.8% in 4Q24, with a further decline, in TBR estimates, to -0.1% in 1Q25. BAH expects a low double-digit contraction in Civil revenue in FY26, with the bulk of the contraction transpiring in FY1H26 (2Q25 and 3Q25). BAH’s Civil unit posted FY25 sales of $4.17 billion, up 5.7% year-to-year from $3.83 billion in FY24. A year-to-year decline between 10% and 12% in FY26 implies Civil sales between $3.57 billion and $3.67 billion, or down between $400 million and $500 million.
 
BAH indicated volume reductions on the five civilian IT programs most directly affected by DOGE would constitute a 300-basis-point headwind to total corporate growth in FY26, with an additional 300 basis points of decline owing to the lost renewal with the VA. BAH expects companywide sales growth in FY26 will be flat to up 4%, implying FY26 revenue between $12 billion and $12.6 billion, with FY26 growth deriving exclusively from the firm’s Department of Defense (DOD) and Intelligence Community (IC) operations. The additional implication here is that BAH’s FY26 full-year revenue would have been between $12.7 billion and $13.2 billion had DOGE not caused the crash in FY26 civilian revenue.
 
According to GX2’s DOGE-Terminated Contracts Tracker, BAH has had 23 contracts worth a total of $155.8 million terminated as of the publishing of this blog, the largest being a $30 million award to implement clinical trial reporting software for the Department of the Interior (DOI) and a $24 million award for data transparency services for the USAspending.gov portal managed by the Department of the Treasury.
 
The remaining cancellations were each worth $13 million or less in TCV and were with Health & Human Services, the Department of Labor, the Department of the Treasury, the Department of Commerce, the Department of Transportation, DOI, the Environmental Protection Agency, and NASA. The cancelled engagements included services related to training coordination and support, operational performance, compliance management, learning management, data visualization, organizational assessment consulting, business process improvement and strategic planning. Based on BAH’s outlook for its Civil business in FY26, TBR believes DOGE’s impact will be far more extensive than implied by the information available on the GX2 website.
 
BAH does expect Civil sales growth will rebound by FY27, and the firm indicated it is already discussing several strategic digital transformation engagements with civilian agencies, which will drive the expected rally. TBR anticipates BAH’s emerging capabilities in AI-assisted coding and agentic AI will factor heavily into these and other future civilian IT projects under the Trump administration.

BAH plans a comprehensive, segmentwide restructuring of its Civil unit beginning in 2Q25

The disruption that has very suddenly overtaken BAH’s civil business has prompted the firm to craft what Rozanski called a “one-time reset” of its civilian operations, including a 7% reduction in global headcount (about 2,500 employees) in 2Q25 that will disproportionately impact BAH’s civilian operations. The decline in civilian award activity has been so abrupt that BAH has not been able to sufficiently redeploy civilian project staff to DOD, IC or commercial sector programs, despite the firm’s expectations that growth will continue in its DOD and IC units in FY26.
 
BAH will cull its bench of civilian-focused consultants and technologists, likely draw down or cancel internship programs, reduce Civil segment management personnel, and realign other aspects of its Civil operations with rapidly eroding project volumes and declining demand from civilian agencies. BAH disclosed total headcount of 35,800 in 1Q25, down 100 sequentially, which the firm indicated was primarily nonclient-facing staff, further suggesting major Civil unit layoffs are on tap for 2Q25.

Growth opportunities will remain for BAH in FY26, though predominantly with the DOD and IC

BAH anticipates continued strong growth in its DOD and IC units in FY26. This is consistent with what TBR has observed in the recent earnings and outlooks tendered by CACI and Leidos, and all three companies, along with other defense- and intelligence-focused federal IT peers, appear to be well aligned with the Trump administration’s emerging defense and national security priorities. BAH is also optimistic that federal IT acquisition reforms will be implemented during Trump 2.0, including a marketwide shift to more fixed-price and outcome-based structuring of IT engagements, which the firm claims it has been advising its federal clients to adopt for several years.
 
The company is working with the General Services Administration to develop innovative ways to transform federal procurement using digital technologies, which could be parlayed by BAH into a multitude of new awards in FY26 and FY27. BAH also intimated it has been preparing for outcome-focused contracting to become more mainstream in federal IT for several years, but this assertion will be brought into question if BAH’s Civil unit suffers a prolonged downturn beyond FY27. BAH expects ample opportunities will remain across the federal space for the foreseeable future to modernize legacy IT systems and integrate emerging technologies to digitally enhance agency missions.

 

TBR’s DOGE Federal IT Impact Series will include analysis of Accenture Federal Services, General Dynamics Technologies, CACI, IBM, CGI, Leidos, IFC International, Maximus, Booz Allen Hamilton and SAIC. Click here to download a preview of our federal IT research and receive upcoming series blogs in your inbox as soon as they’ve published.
 

Oracle Redefines Data Intelligence in Full-stack Approach

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Oracle pivots around data intelligence, owing to its full-stack approach

Oracle has long offered a modern analytics stack tailored to multiple personas and workloads, such as through the Oracle Analytics Cloud (OAC) and Autonomous Data Warehouse (ADW), coupled with the operational data — where the true value exists — in Oracle’s Fusion, NetSuite and Industry Applications. But the 2023 launch of Fusion Data Intelligence (FDI) marked a major shift in Oracle’s analytics strategy and early vision for data intelligence, where data is used not only for static reporting of one-and-done use cases but also for continual predictive insights made possible by AI.
 
As a reminder, Oracle delivers FDI as a single-SKU application, an approach not all peers take, so Fusion customers are connected to their data through the quarterly Fusion updates, potentially causing minimal disruption to the workflow, which is an important enabler of data intelligence. From a technical perspective, FDI also comes with prebuilt AI and machine learning (ML) models, data science capabilities, and even its own separate set of intelligent applications (e.g., Supply Chain Command Center) that are persona-specific, allowing customers to act on a particular use case without leaving FDI, which is now the fastest-growing application across the entire Oracle corporation.
 

Oracle Data Intelligence (Source: TBR)


 
Importantly though, effective data intelligence is about not only the application but also the underlying architecture and whether it can effectively support structured and unstructured data for complex analytics use cases. We all know Oracle Cloud Infrastructure (OCI) has become a critical component of Oracle’s business, and because of the infrastructure layer, Oracle has a top-down advantage that many other players cannot provide.
 
The 2024 launch of Intelligent Data Lake reaffirmed how Oracle wants to further bridge the gap between applications and infrastructure, with an architecture that integrates with ADW and OAC. Essentially, Intelligent Data Lake is a reworking of existing OCI capabilities, such as cataloging and integration, to create a single abstraction layer that, in true data lake fashion, allows customers to query data on object storage, with support for popular data format frameworks including Apache Iceberg.
 
Many peers have been moving more squarely into the data lake space to make it easier for customers to build AI applications on top of a single copy of data. But in the case of Oracle, Intelligent Data Lake serves as the glue between the infrastructure and applications. With Intelligent Data Lake, Oracle has essentially redelivered its analytics tools as part of the Data Intelligence Platform, offering another key layer that could make the case for best-of-breed customers to consolidate more of their data and business intelligence estates on Oracle.
 
Regarding those application components, customers can leverage FDI as a single product, but this extends to NetSuite, Oracle Health (Cerner) and Industry Applications. For instance, last year Oracle launched Energy & Water Data Intelligence, leveraging insights from Industry Applications like Oracle Utilities Customer Cloud Service. More notably, as Oracle pivots around data intelligence, the company is taking steps to help customers access non-Oracle data sources.
 
For instance, last year Oracle launched a native Salesforce integration with FDI so customers can combine their CRM and Fusion data within the lakehouse architecture. This means Oracle customers can access Salesforce data with FDI the same way they can with Fusion. It will be interesting to see if Oracle more aggressively expands the data ecosystem in the future, particularly within the back office, to deliver FDI’s value to those outside the Oracle SaaS base.

FDI aligns with partners’ digital transformation ambitions

One of the compelling things about Oracle’s full-stack approach to analytics, from infrastructure up to applications, is that it prevents Oracle from getting caught up in a traditional BI RFP and instead enables the company to sell Oracle Data Intelligence as part of a broader enterprise transformation, which aligns with global systems integrators’ (GSIs) business models. Today, most of GSIs’ Oracle business comes from the applications side, and doing a Fusion SaaS implementation (e.g., ERP, HCM [human capital management]) and then introducing FDI to break down integration barriers and ultimately make those Fusion apps more “intelligent” appears to be a common motion.
 
In some cases, FDI is also displacing different components of a build-your-own data strategy. For example, we recently heard a compelling example from Infosys, which modernized a customer’s analytics stack by migrating from Snowflake and Informatica to FDI, which was then integrated with external systems, including NetSuite. In a scenario like this, it is clear that having a lot of data in the Oracle ecosystem can influence a customer’s decision to consolidate on FDI, but it also speaks to the role Oracle plays on the infrastructure side, as FDI address not only the analytics pieces but also the underlying data tasks, including the data pipelines, and absorb system-level tasks like ETL (Extract, Transform, Load).
 
Oracle’s full-stack approach to analytics makes a compelling case for consolidation, helping partners create value by eliminating disparate integrations and unlocking ROI. This is particularly true for partners that are perhaps willing to abandon the typical tech-agnostic approach and recommend Oracle as the primary choice from a data and analytics perspective. If Oracle engages a broader external data ecosystem in the future, as discussed above, partners will need to make sure they look beyond the applications layer and leverage Oracle’s broad PaaS and IaaS capabilities for custom development use cases.

GenAI Reshapes IT Services Talent Strategy as Vendors Balance Innovation, Ecosystem Alignment and Economic Headwinds

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GenAI training becomes table stakes for IT services and consulting, but specialization remains selective

In the short-to-mid-term, TBR expects generative AI (GenAI)-specific training to become a standard part of an IT services or consulting professional’s basic tool kit, with specialized training around technology partners’ solutions or a company’s own IP and platforms reserved for those professionals dedicated to AI roles. While some may argue every role is an AI role, the near-term reality is that only a select few among the broader professional services talent base will need specialized training, and the associated budgets will decrease in the coming years.
 
In the long term, we expect vendors’ announcements about training their entire workforce will seem less relevant compared to what is on the horizon for GenAI. That change may take a bit longer, in part because training will affect IT services companies’ commercial models.
 
For example, Infosys’ three talent categories — traditional software engineers, digital specialists focused on digital transformation and ongoing support, and Power Programmers — allow the company to balance innovation and growth while calibrating its business and commercial models. The Power Programmers group consists of highly skilled professionals who are responsible for developing products and ensuring that the intellectual property they create and use meets the cost-saving requirements Infosys pitches to clients.
 
While the other two groups follow a traditional employee pyramid structure, the Power Programmers group is much leaner and resembles the business models that many vendors, including Infosys, may aspire to adopt in the future.

Developing a GenAI-ready, partner-aligned workforce allows vendors to demonstrate value as the market evolves toward SLMs, but accounting for new commercial models will force pyramid calibration

According to TBR’s 4Q24 AI and GenAI Market Landscape, “As TBR predicted in the first half of 2024, the trend around IT services companies and consultancies committing to training their professionals on GenAI platforms and solutions specific to their (preferred?) technology partners accelerated as the year went on. IT services companies and consultancies continued moving away from vendor-agnosticism.
 
Technology partners, most notably the hyperscalers, continued to see their IT services and consultancy partners as essential to convincing enterprises to adopt GenAI solutions, generating further demand for technology. And every professional services company TBR covers announced new training or some kind of benchmark achieved in training their talent on GenAI.”
 
Highlighted activities by vendors in TBR’s Spring 2025 Global Delivery Benchmark reflect the direction of the GenAI market, especially as buyers lean on their existing IT infrastructure and systems to ensure they capitalized on their data lakes to build industry- and/or function-specific small language model (SLMs), compelling IT services vendors to build their GenAI skills around tech partners.

  • Accenture, Microsoft and Avanade launched a Copilot practice in November 2024 that houses 5,000 professionals. Additionally, through its collaboration with Stanford University, Accenture launched an on-demand GenAI learning platform that curates AI content from Stanford Online.
  • In October Atos and Amazon Web Services (AWS) established a GenAI Innovation Studio in Pune, India, enabling both companies to collaborate with clients on industry-specific use cases. The studio will offer training and certification programs, hackathons, and AWS DeepRacer competitions, in addition to hosting technology events as the partners try to foster joint innovation.
  • In July HCLTech expanded its learning resources through a partnership with upGrad Enterprise to create a learning program around GenAI development. HCLTech will establish a Data Science and AI Academy of Excellence, providing upGrad’s education frameworks and resources alongside HCLTech’s industry and technology content. In May 2024 HCLTech worked with Google Cloud around HCLTech’s AI Force platform, bringing in Google Gemini’s AI and large language model (LLM) capabilities. Through its collaboration with SAP, HCLTech continues to enhance its positioning around AI technologies. In addition to leveraging the SAP Learning Platform and expanding its certifications, HCLTech opened an innovation lab for SAP Business AI in December. The lab, located in Munich, will provide SAP S/4HANA Cloud, RISE with SAP and SAP Business AI technology to guide clients’ AI adoption and improve business operations.
  • To support joint activities with AWS, IBM Consulting trained 10,000 people on AWS GenAI services through the end of 2024.
  • Wipro expanded its relationship with Google Cloud during 3Q24. The company will leverage Google Cloud’s Vertex AI and Gemini offerings, enabling its employees to help clients with their cloud migrations and GenAI adoption.

 

Vendor Headcount Growth, 4Q23 vs 4Q24 (Source: TBR)

Choppy market demand buys vendors time to adjust staffing pyramids and test new operating models to account for GenAI implications

Headcount growth improved across benchmarked vendors in 4Q24, which was a reversal from a trend that began 12 months ago. The expansion, however, was rather small, with average headcount increasing 0.4% year-to-year in 4Q24, largely due to Accenture adding over 55,000 net-new additions mainly through acquisitions, which skewed the overall direction.
 
Meanwhile, vendors are at the crossroads of adjusting staffing pyramids to account for long-term GenAI implications and operating in a stagnant market where any spend is oriented toward large transformational deals that require quality in service delivery, often achieved through reskilling and/or acquiring partner-certified staff.
 
Securing trust with legacy and large technology alliance relationships as well as investing in knowledge management frameworks are essential for vendors to protect their incumbent positions. Growing technology complexity is accelerating demand for data and AI security capabilities, compelling vendors to build skills that can enable them to operate in both legacy and new GenAI-enabled environments, further challenging their staffing decisions as the opportunity for robots protecting from other robots might seem enticing at first but carries a fair amount of risk in the long term.
 
In the short-to-mid-term, acquisitions and staff rebadging will likely remain the two main levers for any net-new staff additions as vendors focus on reskilling existing staff as they take a wait-and-see approach until macroeconomic conditions improve.
 
We expect one of two scenarios to occur in the next six months: First, vendors remain diligent and continue to calibrate and fine-tune their staffing pyramids, keeping overall headcount flat to declining with one-off strategic acquisitions and/or rebadging to provide a blip in sequential headcount expansion.
 
Alternatively, macroeconomic conditions improve, largely enabled by better-than-anticipated tariff deals paired with deregulations and lower corporate tax rates in the U.S., resulting in an accelerated rebound in discretionary spending. As a result, vendors race back to hire in bulk quickly, forgetting about their GenAI-fueled optimism and the need to adjust operating models to account for GenAI implications.
 
A bonus scenario: Demand for GenAI drives the need for specialized talent, especially as vendors see the opportunity to pursue custom model development. While this might seem counterintuitive to the promise that the tech will supplement coders, the trust in the technology is not there yet, creating an opening for vendors to hire and train at speed.

TBR’s Global Delivery Benchmark

TBR’s Global Delivery Benchmark is a semiannual research program providing efficiency comparisons, assessments and insight into global delivery strategies and investments across 14 leading IT services firms.
 
Vendor coverage for this research includes Accenture, Atos, Capgemini, Cognizant, Conduent, Dell Technologies Services, DXC Technology, HCLTech, Infosys, IBM, NTT DATA, Tata Consultancy Services (TCS), T-Systems and Wipro IT Services (Wipro ITS). Market segments covered include systems integrators (SIs) with support and maintenance, SIs, and India-centric vendors, while service lines covered are application outsourcing, IT outsourcing, business process outsourcing, and consulting and systems integration.
 
Download a free preview of TBR’s latest global delivery benchmark research: Subscribe to Insights Flight today!

DOGE Federal IT Vendor Impact Series: Leidos

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The Trump administration and its Department of Government Efficiency (DOGE) have generated massive upheaval across the board in federal operations, including in the federal IT segment. As of March 2025, thousands of contracts described by DOGE as “non-mission critical” have been canceled, including some across the federal IT and professional services landscape. TBR’s DOGE Federal IT Vendor Impact Series explores vendor-specific DOGE-related developments and impacts on earnings performance. Click here to receive upcoming series blogs in your inbox as soon as they’ve published.

 

Leidos suffered no DOGE-related material erosion to its sales, profitability or order book in 1Q25 and is holding to its FY25 outlook

By all accounts, Leidos was virtually unaffected by the Department of Government Efficiency (DOGE) in 1Q25. In its 1Q25 earnings release on May 6, Leidos announced that revenue rose 6.8% year-to-year, from $3.98 billion in 1Q24 to $4.25 billion in 1Q25. Additionally, margin performance remains robust: Gross margin was 17.8%, up from 15.9% in 4Q24; operating margin was 12.5%, up from 9.6% in 4Q24; and adjusted EBITDA margin (non-GAAP margin excluding taxes, interest, depreciation and amortization) was 14.2%, up from 11.6% in 4Q24. Backlog also hit an all-time high, rising 6.3% sequentially to $46.3 billion in 1Q25.
 
Leidos is standing by the fiscal year 2025 (FY25) outlook it tendered at the end of FY24 and still expects FY25 sales of between $16.9 billion and $17.3 billion, implying growth of between 1.4% and 3.8% over FY24 sales of $16.7 billion. The company is calling for a FY25 non-GAAP EBITDA margin in the mid- to upper-12% range, implying non-GAAP margin will most likely decrease from the FY24 record 12.9%. Leidos reaffirmed all other aspects of its FY25 guidance in 1Q25, underscoring the company’s confidence that it will experience minimal disruption from DOGE to its book of business on profit-and-loss (P&L) statement in FY25.

Leidos is keen to distinguish itself from consulting-focused peers

During Leidos’ 1Q25 earnings discussion, CEO Tom Bell emphasized the company’s chief differentiators while setting itself apart from its advisory-led federal systems integrators (FSIs). Bell opened the call by saying, “This administration’s clear preference [is] to work with firms that solve problems and get things done, not consultants that study problems and publish reports.” He also noted that DOGE’s impact on Leidos’ 1Q25 top line was essentially negligible, at only 1% of 1Q25 revenue, or roughly $40 million — a figure that essentially aligns with what TBR has observed on GX2’s DOGE-Terminated Contracts Tracker, which tracks DOGE-based developments in federal contracting, specifically contract terminations or drawdowns.
 
According to the GX2 website, Leidos has had a total of $56.5 million in contracts terminated by DOGE as of the publishing of this blog. The General Services Administration (GSA) continues to review the contracts held by Leidos and nine other companies* the Trump administration instructed DOGE to initially target in its effort to cut $65 billion in consulting fees the federal government is set to pay in federal fiscal year 2025 (FFY2025) and future years.
 
Bell also commented, “One of the things that we’ve taken a little bit of issue with is the fact that while we’ve been lumped into a consulting review, we’ve never used those words back the GSA. Less than 1% of our revenue could generously be considered consulting revenue.” Leidos’ strong 1Q25 results and willingness to reaffirm its full-year guidance after only one quarter — albeit a very turbulent one for many of Leidos’ competitors — support the notion that Leidos’ portfolio and book of business should remain relatively insulated from major DOGE-related disruptions in FY25.
 
Eleven ongoing contracts in Leidos’ order book were cancelled, the largest being a $25 million program with the Department of Housing and Urban Development for energy and water benchmarking services. Leidos also had five awards worth a total of $31.6 million with the Department of Health and Human Services terminated by DOGE, the largest being a $12 million award to develop models for cancer drug development while the remainder appeared to be mostly research focused. Leidos lost less than $2 million worth of engagements with the Department of Defense for service, mapping, integration and transport services on what appeared to be the $7.7 billion NGEN (Next Generation Enterprise Network) program with the U.S. Navy.
 
In contrast to Leidos’ award terminations, Accenture Federal Services has had over $193 million in cancellations, Deloitte Federal lost over $473 million worth of contracts and IBM has had over $40 million in awards sacked by DOGE.

Leidos’ go-to-market messaging in FY25 will underscore the tight alignment of its portfolio with DOGE’s agenda and the Trump administration’s IT priorities

In FY25 Leidos will tout its mission-critical solutions to enhance outcomes quickly, cost-effectively and at scale for federal agencies. Leidos will accelerate efforts to draw closer to its federal clients, emphasizing how they can more effectively utilize the company’s delivery scale and depth of mission expertise to comply with DOGE’s mandates, the overarching IT objectives of the Trump administration and the enduring need to modernize federal technology infrastructures.
 
Leidos is also very well positioned to continue capitalizing on accelerating demand for faster, more efficient IT-enabled healthcare services for veterans. Sales in the company’s Health & Civil unit rose 8% year-to-year and the segment’s non-GAAP operating income margin was 23.6% in 1Q25, owing to strong project volumes on managed health services contracts. Leidos also expects to win two large-scale, multibillion-dollar health IT contracts over the next one to two years: a follow-on award to the MHS Genesis electronic health record engagement on which Leidos recently achieved 100% deployment, and a subsequent five-year, $1 billion award to the Reserve Health Readiness program to provide commercial health services to all U.S. military reserves (set to conclude in 2026).
 
Finally, Leidos’ executives indicated during the earnings call that the Trump administration and DOGE became much more accessible to the federal IT contracting community during 1Q25 and have indicated a strong willingness to work with the industry in improving operating efficiencies across the federal government. Bell noted, “I’ve sought out and secured more meetings with cabinet members and key administration executives in the last month than I was able to secure during the whole of the last administration. And we’re seeing significant receptivity in those meetings to big ideas we are bringing forward.”
 
Some of those “big ideas” include the Golden Dome missile defense shield (a program with a potential worth of tens of billions of dollars, and that will draw fierce competition from Booz Allen Hamilton) and an upgrade to domestic air traffic systems. Leidos also believes its suite of defense solutions and R&D capabilities is well aligned to the FFY2026 defense budget, which could top $1 trillion.

 

TBR’s DOGE Federal IT Impact Series will include analysis of Accenture Federal Services, General Dynamics Technologies, CACI, IBM, CGI, Leidos, IFC International, Maximus, Booz Allen Hamilton and SAIC. Click here to download a preview of our federal IT research and receive upcoming series blogs in your inbox as soon as they’ve published.

 

DOGE Federal IT Vendor Impact Series: CGI Federal

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The Trump administration and its Department of Government Efficiency (DOGE) have generated massive upheaval across the board in federal operations, including in the federal IT segment. As of March 2025, thousands of contracts described by DOGE as “non-mission critical” have been canceled, including some across the federal IT and professional services landscape. TBR’s DOGE Federal IT Vendor Impact Series explores vendor-specific DOGE-related developments and impacts on earnings performance. Click here to receive upcoming series blogs in your inbox as soon as they’ve published.

 

While DOGE had no material impact on CGI Federal’s top-line growth in 1Q25, bookings growth was likely impeded by its actions

CGI corporate tendered its 1Q25 earnings on April 30 with estimated* quarterly revenue of $401 million for CGI Federal (the company’s U.S. Federal operations), representing 8.9% year-to-year growth.
 
A strong inorganic tailwind from the company’s 3Q24 strategic acquisition of Aeyon, the largest peer purchase in company history, continues to bolster CGI Federal’s top-line growth. We estimate Aeyon will add between $140 million and $150 million in inorganic revenue (on a full-year basis) for CGI Federal once the acquisition is fully integrated from a revenue standpoint. The company contributed roughly $40 million to CGI Federal’s top line in 1Q25. The integration period, which began in 3Q24, is set to end in 2Q25.
 
While top-line growth remained robust, CGI Federal’s bookings dipped below CA$300 million for the first time since 1Q21, falling to CA$231 million ($161 million USD, est.) in 1Q25 from CA$357 million ($255 million USD, est.) in 4Q24. While seasonal contraction in bookings is typical in CGI Federal’s order book from the fourth calendar quarter of one year to the first calendar quarter of the next, the decline observed in 1Q25 may be due to DOGE’s actions in the federal IT market. CGI’s executives indicated during the company’s 1Q25 earnings discussion that since the November election and January administrative transition, federal agencies have preferred smaller-scale “bridge” contracts rather than multiyear renewals to keep current work ongoing until there is greater budget clarity in federal IT procurement.
 
Corporate level days sales outstanding (DSO) was down to 34.28 in 1Q25 from 35.12 in 4Q24. DSO in 1Q25 was also the lowest receivables collection time TBR has observed since CGI posted DSO of 33.44 in 1Q21.  While company executives declined to provide a specific DSO figure for CGI Federal, they noted that neither invoice approvals nor payments from federal market clients were taking longer than usual to obtain. CGI corporate also placed greater emphasis on improving receivables collection in FY25 (which commenced in calendar 4Q24), particularly in its U.S. federal operations as a hedge against any post-election turbulence in the federal budget process.

Strategic M&A in 2024 buffered top-line growth and better aligned CGI Federal’s portfolio with DOGE’s efficiency agenda

Acquiring Aeyon enhanced CGI Federal’s digital modernization capabilities and provided the company greater access to civilian, space and homeland security agencies. Aeyon was an aggressive acquisition that enhanced CGI Federal’s portfolio and delivery scale in IT modernization at the time of the purchase and has positioned CGI Federal strongly to capitalize on DOGE’s goal to drive greater efficiencies in federal operations by leveraging AI, analytics, automation, big data and cloud technologies, all capabilities expanded by the Aeyon purchase.
 
Aeyon’s civilian clients include the Federal Aviation Administration (FAA), which awarded CGI Federal a contract in April 2025 worth up to $186.4 million to migrate the FAA’s Notice to Airmen (NOTAM) system to a cloud-based environment. Obsolete and antiquated legacy hardware and software in the NOTAM system have been blamed for numerous air traffic stoppages that have disrupted thousands of flights and cost airlines millions since 2023.
 
Additionally, Aeyon expanded CGI Federal’s footprint in the Department of Defense (DOD), which could bode particularly well for CGI Federal as the Trump administration indicated in early April plans to submit a FFY26 (federal fiscal year 2026) defense budget request that could top $1 trillion for the first time in history, up from $895 billion in FFY25 and $841 billion in FFY24. CGI Federal does not build weapons platforms or munitions, but it offers robust proprietary solutions such as Sunflower (cloud-based asset management) and Momentum (financial management) that have relevance for DOD agencies and services branches looking to enhance fiscal and supply chain management, especially to comply with DOGE-related mandates. CGI Federal also provides defense agencies cybersecurity solutions.
 
Lastly, acquiring Aeyon expanded CGI Federal’s presence with NASA and other space-related areas in the federal market, in which the Trump administration plans significant budget increases, primarily to support global defense and intelligence operations but also to increase the resilience of IT systems used by federal law enforcement agencies.

CGI Federal expects greater emphasis on outcome-based contracting during Trump 2.0

CGI Federal generates over 50% of its revenue from outcome-focused engagements, typically contracts structured as fixed-price awards. 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 intellectual property (IP)-based offerings like Sunflower and Momentum, and demand for these offerings will at least endure, but likely increase, under DOGE.

CGI Federal is on DOGE’s federal consultancy ‘hit list’ but may fare better than other advisory-led FSIs

The General Service Administration (GSA) continues to review contracts held by CGI Federal and nine other companies** the Trump administration instructed DOGE to initially target in an effort to cut $65 billion in consulting fees the federal government is set to pay in FFY25 and future years. According to GX2’s DOGE-Terminated Contracts Tracker, which tracks developments in federal contracting, CGI Federal has had a total of $13.4 million in contracts terminated by DOGE as of the publishing of this blog. For comparison, Accenture Federal Services has had over $193 million in cancellations, Deloitte Federal lost over $473 million worth of contracts, and IBM has had over $40 million in awards canceled by DOGE.
 
Only five total awards in CGI Federal’s book-of-business are listed as cancelled on the GX2 website, the largest termination being a $6 million contract for application development services for the Federal Communications Commission.  Other cancellations, albeit small in scale and total value, appear to have hit CGI Federal in its asset and financial management wheelhouse. These contracts include a $4.6 million cancelled deal for digital asset management solutions with the GSA, a $2 million contract to operate a procurement platform for the Department of Justice, an award worth $785,000 for asset management services with the Department of Transportation, and a $66,000 contract for property management software with the Federal Mediation and Conciliation Service.
 
CGI Federal claims it 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. The $13.4 million in DOGE-related cancellations represents less than 1% of CGI Federal’s trailing 12-month revenue of $1.55 billion (as of 1Q25).
 
*CGI corporate reports its fiscal data, including business line revenue, in Canadian dollars (CAD). TBR estimates fiscal information for CGI corporate and CGI Federal in U.S. dollars by multiplying the reported quarterly data in CAD by the average exchange rate for the quarter as provided by www.x-rates.com (0.696539 in 1Q25). CGI Federal reported sales of CA$575.5 million in 1Q25, or $401 million U.S. dollars (USD).

**Accenture Federal Services, Booz Allen Hamilton, Deloitte Consulting, General Dynamics IT, Guidehouse, HII Mission Technologies, IBM, Leidos, SAIC

 

TBR’s DOGE Federal IT Impact Series will include analysis of Accenture Federal Services, General Dynamics Technologies, CACI, IBM, CGI, Leidos, IFC International, Maximus, Booz Allen Hamilton and SAIC. Click here to download a preview of our federal IT research and receive upcoming series blogs in your inbox as soon as they’ve published.

 

U.S. Mobile Operator Benchmark

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Most operators will sustain wireless service revenue and connection growth in 2025 but face headwinds from macroeconomic challenges and Trump administration immigration policies

Most benchmarked operators sustained service revenue growth in 4Q24, driven by connection growth and higher ARPA

Total wireless revenue from benchmarked U.S. operators increased 4.5% year-to-year to $78.9 billion in 4Q24, mainly due to continued postpaid phone subscriber growth and higher average revenue per account (ARPA). Although the market is maturing, operators are maintaining postpaid phone net additions due to factors including population growth and more businesses purchasing mobile devices for employees. Higher ARPA is being driven by operators increasing connections per account, including from growing fixed wireless access (FWA) adoption, uptake of premium unlimited data plans and recent rate increases implemented over the past year.
 
Though most U.S. operators expect to continue to grow wireless service revenue and connections in 2025, they will face headwinds from factors including macroeconomic pressures (including layoffs within the private and public sectors and uncertainty around tariff impacts) and immigration policies under the Trump administration (including mass deportations).

U.S. operators increase focus on cross-selling mobile and broadband services

U.S. operators are focused on advancing their convergence strategies by offering plans bundling mobile and broadband services. The bundles create a stickier ecosystem to reduce churn long-term via the convenience of enrolling in broadband and mobility services from the same provider as well as by providing discounted pricing compared to purchasing those services separately.
 
Operators including AT&T, Charter, Comcast, T-Mobile and Verizon are growing their ability to offer these bundles via the expanding service availability of their broadband services (including wireline and FWA offerings). Operators are also targeting acquisitions to strengthen their convergence strategies, such as Verizon’s pending purchase of Frontier Communications and T-Mobile’s proposed joint ventures to acquire Metronet and Lumos. Cable operators also have significant opportunity to increase sales of converged services as a relatively low portion of cable broadband customers are enrolled in their service provider’s mobile offering.

AI is providing cost savings and revenue generation opportunities for U.S. operators

U.S. operators are focused on more deeply implementing AI technologies in areas including optimizing customer service and sales & marketing functions as well as enhancing network operations. For instance, deeper AI implementation will help AT&T reach its goal of generating $3 billion in run-rate cost savings between 2025 and 2027, while leveraging AI technologies will help T-Mobile meet its target of reducing the number of inbound customer care calls by 75%.
 
AI will also help operators optimize energy usage, especially as it pertains to network operations. Examples include using AI for optimal, dynamic traffic routing and to determine when to turn on and turn off radios to optimize energy usage. AI, especially providing network and real estate resources to support AI inferencing workloads, will create significant revenue opportunities for operators.
 
For instance, Verizon views telco AI delivery as having a $40 billion total addressable market, and the company has already secured a sales funnel of over $1 billion in business by leveraging its existing infrastructure and resources.

Operators are focused on cost-cutting initiatives, including streamlining headcount and more deeply implementing AI technologies, to improve margins

The impacts of inflation and challenging macroeconomic conditions, such as lower consumer discretionary spending, higher network operations and transportation expenses, and increased labor-related costs, are limiting profitability for U.S. operators. These challenges are leading operators to implement cost-cutting and restructuring initiatives to improve profitability, such as AT&T’s goal of generating $3 billion in savings from 2025 to the end of 2027 through its latest cost-cutting program.
 
Operators are streamlining headcount as part of their cost-cutting initiatives. For instance, about 4,800 employees are expected to leave Verizon by the end of March 2025 as part of the company’s latest voluntary separation program.
 
To increase cost savings and operational efficiencies, operators are more deeply implementing AI technologies in areas including customer service, field technician support and fleet vehicle fuel consumption.
 
T-Mobile is improving profitability, evidenced by its EBITDA margin growing by 220 basis points year-to-year to 35.4% in 4Q24, which was impacted by the company’s higher revenue and lower network costs aided by greater merger-related synergies. T-Mobile’s 2025 guidance for core adjusted EBITDA* is between $33.1 billion and $33.6 billion, compared to $31.8 billion in 2024. Service revenue growth as well as cost-cutting initiatives and merger-related synergies will all contribute to higher core adjusted EBITDA.
 
*Core adjusted EBITDA reflects T-Mobile’s adjusted EBITDA less device lease revenues.
 

Graph: Wireless Revenue, EBITDA Margin and Year-to-year Growth for 4Q24 (Source: TBR)

Wireless Revenue, EBITDA Margin and Year-to-year Growth for 4Q24 (Source: TBR)


 

T-Mobile continued to lead the U.S. in postpaid phone and broadband net additions in 4Q24 and recently launched new FWA pricing plans

Operators are attracting FWA customers, mainly because FWA offerings have lower price points compared to other broadband services and are available to customers in markets with limited other high-speed broadband options, such as within rural markets. Though consumers account for the bulk of FWA connections, FWA is also gaining momentum among businesses seeking to reduce connectivity expenses and/or companies needing to quickly launch new branch locations, as the technology can be installed faster than fixed broadband.
 
In 4Q24 T-Mobile continued to lead the U.S. in broadband subscriber growth, driven by its FWA services, aided by the company continuing to gain market share against cable companies including Comcast and Charter, which reported steeper broadband customer losses in 4Q24 both year-to-year and sequentially. T-Mobile also reported its highest-ever year-to-year broadband ARPU growth in 4Q24, which was aided by the company revamping its 5G Home Internet and Small Business Internet plans in December.
 

Graph: Total FWA Net Additions for 4Q23-4Q24 (Source: TBR)

Total FWA Net Additions for 4Q23-4Q24 (Source: TBR)


 

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Wireless capex moderated for most U.S. CSPs in 2024 as they are in the later stages of 5G rollouts

Verizon’s consolidated capex will increase to a guidance range of $17.5 billion to $18.5 billion in 2025, compared to $17.1 billion in 2024 (higher consolidated capex is mainly due to increased wireline capex to support Verizon’s accelerated Fios build). TBR estimates Verizon’s wireless capex in 2025 will be relatively consistent compared to 2024 as the company will focus on the continued expansion of C-Band 5G services into suburban and rural markets.
 
AT&T’s 2025 guidance for capital investment, which includes capex and cash paid for vendor financing, is in the $22 billion range, consistent with $22.1 billion in capital investment in 2024. Capital investment in 2025 will entail materially lower vendor financing payments compared to 2024, while capex is expected to increase year-to-year in 2025. TBR estimates AT&T’s wireless capex will be about $10.6 billion in 2025, which will help to meet AT&T’s goals, including providing midband 5G coverage to over 300 million POPs by the end of 2026 and completing the majority of its transition to open-RAN-compliant technologies by 2027.
 
T-Mobile’s capex guidance for 2025 is around $9.5 billion, compared to $8.8 billion in capex spent in 2024, with spending focused on continued 5G network deployments as well as investments in IT platforms to enhance efficiency and customer experience.

Enterprise Edge Compute Market Landscape

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Healthcare, industrial and consumer goods respondents have the highest rates of edge computing technology adoption

Modern edge computing use cases remain a relatively new concept for the majority of organizations, although they are gaining popularity as 36% of respondents indicate their organization is currently using edge technology compared to 29% in 2023. However, the majority of respondents plan to deploy edge solutions in the future or observe edge use cases in their industry.
 
Seventy-eight percent (78%) of respondents in the healthcare and industrial verticals either plan to use or currently use edge computing.
 
Consumer goods respondents also have a keen interest in edge computing, which may be driven by use cases at brick-and-mortar locations and the emergence of packaged solutions for retail.
 

Graph: 2Q24 Plans to Use Edge Computing (Source: TBR)

2Q24 Plans to Use Edge Computing (Source: TBR)


 

GenAI will not have a significant impact on enterprise edge market growth, at least in the near term, as customers prioritize their investments in the IT core and cloud

Forecast assumptions

TBR continues to revise its enterprise edge forecast to account for changes in the traditional IT and cloud markets, including the advent of generative AI (GenAI). Although the enterprise edge market benefited from the hype surrounding AI in 2024, many pilot projects may not enter production and more concrete use cases around edge AI need to be developed.
 
The enterprise edge market is estimated to grow at a 19.9% CAGR from 2024 to 2029, surpassing $144 billion by 2029. Professional and managed services will remain the fastest-growing segment, followed by software, at estimated CAGRs of 22.4% and 19.3%, respectively.
 

Graph: Enterprise Edge Spending Forecast by Segment for 2024-2029 (Source: TBR)

Enterprise Edge Spending Forecast by Segment for 2024-2029 (Source: TBR)


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Given customers’ preference for first migrating to the public cloud and then extending data out to the edge for certain use cases, AWS has a compelling reason to consolidate its edge portfolio

TBR assessment

The evolution of networking bandwidth, maturity of Amazon Web Services’ (AWS) public cloud services, and overall strategic shift around GenAI have AWS reevaluating some aspects of its edge portfolio. In November 2024 the cloud giant discontinued three generations of Snowball edge devices for both storage and compute, forcing customers to look for alternative data migration solutions like DataSync and Direct Connect. AWS also announced that the Fleet Hub feature of AWS IoT Device Management will reach end of life in October 2025. In our view, these discontinuations, particularly for the Snow family of hardware, are a big reaffirmation of customers’ preference for extending the public cloud to the edge as opposed to taking an “edge-native” approach. We have long discussed how the hyperscalers are encroaching on the edge opportunity, and customers appear to be overwhelmingly initiating online migrations to the cloud and using native services, such as AWS DataSync, to move data from the cloud to edge environments. That said, expanding the company’s IaaS footprint, through offerings like Outposts and Local Zones to support customers’ cloud-to-edge strategies, is still very much a focus for AWS.

Recent developments

  • In late 2024 AWS announced Satellite Resiliency for AWS Outposts, a managed solution backed by partners like Accenture, Capgemini, Deloitte, Kyndryl and Tata Consultancy Services (TCS), that connects Outposts to commercial satellites. This solution greatly expands the reach of where AWS services can be consumed, and helps enable local data processing while supporting connectivity in the event of outages or network disruptions.
  • NetApp announced it is bringing its ONTAP storage arrays to AWS Outposts. This means customers that leverage either AWS Outpost servers or racks can manage and provision NetApp storage solutions directly via the AWS Management Console.
  • Customers can now use different storage classes including S3 Express One Zone and S3 One Zone-Infrequent Access in AWS Dedicated Local Zone environments. These storage classes are designed to accommodate specific data perimeters and support customers’ data residency use cases.

Key strategies

  • Offer the broadest set of infrastructure options with Local Zones and Wavelength Zones to appeal to customers looking to run their applications with millisecond latencies to mobile devices and/or end users.
  • Integrate security offerings, such as Identity and Access Management, with networking offerings to drive adoption.
  • Work with ISVs to expand availability of edge solutions on the AWS Marketplace.

 

Cloud Components Benchmark

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Behind healthy server backlog and new software IP, hardware vendors drive the cloud components market, particularly as software pure plays prioritize entirely public cloud migrations

Hardware-centric vendors continue to make their move into software

Over the past several years, the cloud software components market has shifted. Microsoft and Oracle are no longer dominating the market as they prioritize their native tool sets and encourage customers to migrate to public cloud infrastructure. Driven largely by weaker-than-expected purchasing around Microsoft Windows Server 2025, aggregate revenue growth for these two software-centric vendors was down 3% year-to-year in 3Q24. Over the same compare, total software components revenue for the benchmarked vendors was up 14% and total cloud components revenue was up 8%. In some ways, this dynamic has made room for hardware-centric vendors such as Cisco and Hewlett Packard Enterprise (HPE) to move deeper into the software space, particularly as they buy IP associated with better managing orchestration infrastructure in a private and/or hybrid environment.

Backlog-to-revenue conversion for AI servers fuels market growth

Though revenue mixes are increasingly shifting in favor of software, driven in part by acquisitions (e.g., Cisco’s purchase of Splunk), hardware continues to dominate the market, accounting for 80% of benchmarked vendor revenue in 3Q24. Industry standard servers being sold to cloud and GPU “as a Service” providers are overwhelmingly fueling market growth, more than offsetting unfavorable cyclical demand weakness in the storage and networking markets. This growth is largely driven by the translation of backlog into revenue, but vendors are still bringing new orders into the pipeline, which speaks to ample demand from both AI model builders and cloud providers. However, large enterprises are increasingly adopting AI infrastructure as part of a private cloud environment to control costs and make use of their existing data.

Graph: Cloud Revenues by Segment for 3Q23-3Q24 (Source: TBR)

Cloud Revenues by Segment for 3Q23-3Q24 (Source: TBR)

 

Ample scale and strong demand from both CSPs and enterprises extend Dell’s lead in the cloud components market

Cloud components vendor spotlights

Dell Technologies [Dell]

From a revenue perspective, HPE and Cisco once threatened Dell’s cloud components leadership, but the company has been able to distance itself from its nearest competitors. This is largely due to Dell’s performance over the past year, with strong server demand, particularly from Tier 2 cloud service providers (CSPs), propelling the company’s corporate and cloud components revenue growth rate to the double digits. Meanwhile, in 3Q24 Dell shipped $2.9 billion worth of AI servers while backlog reached $4.5 billion, reflecting 181% year-to-year growth during the quarter and indicating strong future revenue performance.

Hewlett Packard Enterprise

Like its peers, HPE is benefiting from AI-related server demand, and in 3Q24 the company reported $1.5 billion in total AI systems revenue. HPE continues to benefit from its ongoing efforts to shift the sales mix in favor of software and services via GreenLake. In 3Q24 HPE completed its acquisition of Morpheus Data, officially equipping HPE with a suite of infrastructure software that allows customers to take core hypervisors, such as KVM and VMware, and use them to build complete private cloud stacks.

Cisco

With its acquisition of Splunk, Cisco has emerged as the leader of the software components market, even surpassing Microsoft in related revenue. But networking still accounts for the bulk of Cisco’s components business, and, as evidenced by a 32% year-to-year decline in total hardware revenue for 3Q24, Cisco is facing headwinds in the core networking business. That said, the company is actively taking steps to build out its portfolio, particularly by integrating more security components into the networking layer, which is where most cyberattacks originate, to boost its long-term competitiveness in the market.

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Infrastructure agnosticism and flexible cloud-enabled delivery are core attributes of the service delivery market, cementing IBM’s leadership

Dedicated orchestration tools continue to have their place in the market, both in on-premises and cloud environments, but growth is largely driven by application lifecycle management and orchestration tools that span multiple environments. IBM has a rich history in this space and remains a revenue leader. Cisco used to have a foothold in the market but no longer sells its CloudCenter suite.

Vendor spotlight: IBM

After taking steps to bring watsonx into Maximo in 2Q24 for greater process automation, IBM strengthened its commitment to the asset performance management space with the acquisition of Prescinto. Prescinto offers AI tools and accelerators designed for asset owners and operators with a focus on renewable energy and operators. This deal is designed to support IBM’s play in certain verticals, particularly energy and utilities.

Graph: Service Delivery and Orchestration Revenue Growth vs Cloud Software Components Revenue Growth for 3Q24 (Source: TBR)

Service Delivery and Orchestration Revenue Growth vs Cloud Software Components Revenue Growth for 3Q24 (Source: TBR)

 

AI PC and AI Server Market Landscape

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Despite hyperscalers’ increasing investments in custom AI ASICs, TBR expects demand for GPGPUs to remain robust over the next 5 years, driven largely by the ongoing success of NVIDIA DGX Cloud

The world’s largest CSPs, including Amazon, Google and Microsoft, remain some of NVIDIA’s biggest customers, using the company’s general-purpose graphics processing units (GPGPUs) to support internal workloads while also hosting NVIDIA’s DGX Cloud service on DGX systems residing in the companies’ own data centers.
 
However, while Amazon, Google and Microsoft have historically employed some of the most active groups of CUDA developers globally, all three companies have been actively investing in the development and deployment of their own custom AI accelerators to reduce their reliance on NVIDIA. Additionally, Meta has invested in the development of custom AI accelerators to help train its Llama family of models, and Apple has developed servers based on its M-Series chips to power Apple Intelligence’s cloud capabilities.
 
However, even as fabless semiconductor companies such as Broadcom and Marvell increasingly invest in offering custom AI silicon design services, only the largest companies in the world have the capital to make these kinds of investments. Further, only a subset of these large technology companies engage in the type of operations at scale that would yield measurable returns on investments and total cost of ownership savings. As such, even as investments rapidly rise in the development of customer AI ASICs, the vast majority of customers continue to choose NVIDIA’s GPGPUs due to not only their programming flexibility but also the rich developer resources and robust prebuilt applications comprising the hardware-adjacent side of NVIDIA’s comprehensive AI stack.
 

Graph: Data Center GPGPU Market Forecast for 2024-2029 (Source: TBR)

Data Center GPGPU Market Forecast for 2024-2029 (Source: TBR)


 

Companies across a variety of industry verticals want to take a piece of NVIDIA’s AI cake

Scenario Discussion: NVIDIA faces increasing threats from both industry peers and partners

NVIDIA GPGPUs are the accelerator of choice in today’s AI servers. However, the AI server and GPGPU market incumbent’s dominance is increasingly under threat by both internal and external factors that are largely related. Internally, as Wall Street’s darling and a driving force behind the Nasdaq’s near 29% annual return in 2024, NVIDIA’s business decisions and quarterly results are increasingly scrutinized by investors, forcing the company to carefully navigate its moves to maximize profitability and shareholder returns. Externally, while NVIDIA positions itself largely as a partner-centric AI ecosystem enabler, the number of the company’s competitors and frenemies is on the rise.
 
Despite NVIDIA’s sequentially eroding operating profitability, investor scrutiny has not had a clear impact on the company’s opex investments — evidenced by a 48.9% year-to-year increase in R&D spend during 2024. However, it may well be a contributing factor to the company’s aggressive pricing tactics and rising coopetition with certain partners. While pricing power is one of the luxuries of having a first-mover advantage and a near monopoly of the GPGPU market, high margins attract competitors and high pricing drives customers’ exploration of alternatives.
 
Additionally, the fear of vendor lock-in among customers is something that comes with being the only name in town, and while there is not much most organizations can do to counteract this, NVIDIA’s customers include some of the largest, most capital-rich and technologically capable companies in the world.
 
To reduce their reliance on NVIDIA GPUs, hyperscalers and model builders alike have increasingly invested in the development of their own custom silicon, including AI accelerators, leveraging acquisitions of chip designers and partnerships with custom ASIC developers such as Broadcom and Marvell to support their ambitions. For example, Amazon Web Services (AWS), Azure, Google Cloud Platform (GCP) and Meta have their own custom AI accelerators, and OpenAI is reportedly working with Broadcom to develop an AI ASIC of its own. However, what these custom AI accelerators have in common is their purpose-built design to support company-specific workloads, and in the case of AWS, Azure and GCP, while customers can access custom AI accelerators through the companies’ respective cloud platforms, the chips are not physically sold to external organizations.
 
In the GPGPU space, AMD and, to a lesser extent, Intel are NVIDIA’s direct competitors. While AMD’s Instinct line of GPGPUs has become increasingly powerful, rivaling the performance of NVIDIA GPGPUs in certain benchmarks, the company has failed to gain share from the market leader due largely to NVIDIA CUDA’s first-mover advantage. However, the rise of AI has driven growing investments in alternative programming models, such as AMD ROCm and Intel oneAPI — both of which are open source in contrast to CUDA — and programming languages like OpenAI Triton. Despite these developments, TBR believes NVIDIA will retain its majority share of the GPGPU market for at least the next decade due to the momentum behind NVIDIA’s closed-source software and hardware optimized integrated stack.
 

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Microsoft Copilot+ PCs represent a brand-new category and opportunity for Windows PC OEMs industrywide

PC OEMs expected the post-pandemic PC refresh cycle to begin in 2023, but over the past 18 months, their expectations have continually been delayed, with current estimates indicating the next major refresh cycle will ramp sometime in 2025. While the expected timing of the refresh cycle has changed, the drivers have remained the same, with PC OEMs expecting that the aging PC installed base, the upcoming end of Windows 10 support — slated for October 2025 — and the introduction of new AI PCs will coalesce, driving meaningful rebounds in the year-to-year revenue growth of both the commercial and consumer segments of the PC market.
 
As organizations graduate from Windows 10 devices to Windows 11 devices, TBR expects many customers will opt for AI PCs to future-proof their investments, understanding that the overall commercial PC market will be dominated by devices powered by Windows AI PC SoCs in a few years’ time. However, while TBR expects the Windows AI PC market to grow at a 44.3% CAGR over the next five years, the driver of this robust growth centers on the small revenue base of Windows AI PCs today.
 
While Apple dominated the AI PC market in 2024 due to the company’s earlier transition to its own silicon platform — the M Series, which features onboard NPUs — TBR estimates indicate that among the big three Windows OEMs, HP Inc.’s AI PC share was greatest in 2024, followed closely by Lenovo and then Dell Technologies. Without an infrastructure business, HP Inc. relies heavily on its PC segment to generate revenue, and as such, TBR believes that relative to its peers — and Dell Technologies in particular — HP Inc. is more willing to trade promotions and lower margins for greater number of sales, which is a key factor in the current increasingly price-competitive PC market. TBR estimates Lenovo’s second-place positioning is tied to the company’s growing traction in the China AI PC market, where the company first launched AI PCs leveraging a proprietary AI agent in a region where Microsoft Copilot has no presence.
 

Graph: Windows AI PC Market Forecast for 2024-2029 (Source: TBR)

Windows AI PC Market Forecast for 2024-2029 (Source: TBR)

The PC ecosystem increases its investments in developer resources to unleash the power of the NPU

 
Currently available AI PC-specific applications, such as Microsoft Copilot and PC OEMs’ proprietary agents, are focused primarily on improving productivity, which drives more value on the commercial side of the market compared to the consumer side. However, it is likely more AI PC-specific applications will be developed that harness the power of the neural processing unit (NPU), especially as AI PC SoCs continue to permeate the market.
 
Companies across the PC ecosystem, including silicon vendors, OS providers and OEMs, are investing in expanding the number of resources available to developers to support AI application development and ultimately drive the adoption of AI PCs. For example, AMD Ryzen AI Software and Intel OpenVINO are similar bundles of resources that allow developers to create and optimize applications to leverage the companies’ respective PC SoC platforms and heterogenous computing capabilities, with both tool kits supporting the NPU, in addition to the central processing unit (CPU) and GPU.
 
However, as it relates to AI PCs, TBR believes the NPU will be leveraged primarily for its ability to improve the energy efficiency of certain application processes, rather than enabling the creation of net-new AI applications. While the performance of PC SoC-integrated GPUs pales in comparison to that of discrete PC GPUs purpose-built for gaming, professional visualization and data science, the TOPS performance of SoC-integrated GPUs typically far exceeds that of SoC-integrated NPUs, due in part to the fact that the processing units are intended to serve different purposes.
 
The GPU is best suited for the most demanding parallel processing functions, requiring the highest levels of precision, while the NPU is best suited for functions that prioritize power efficiency and require lower levels of precision, including things like noise suppression and video blurring. As such, TBR sees the primary value of the NPU being extended battery life — an extremely important factor for all mobile devices. This is the key reason why TBR believes that AI PC SoCs will gradually replace all non-AI PC SoCs, eventually being integrated into nearly all consumer and commercial client devices.
 
One of the reasons PC OEMs are so excited about the opportunity presented by AI PCs is that AI PCs command higher prices, supporting OEMs’ longtime focus on premiumization. Commercial customers, especially large enterprises in technology-driven sectors like finance, typically buy more premium machines, while consumers generally opt for less expensive devices, and TBR believes this will be another significant driver of AI PC adoption rising in the commercial segment of the market before the consumer segment.