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Post Updated: Aug. 6, 2025

Hyperscalers focus investments on AI workloads, which will likely land in the cloud anyway and thus in some ways foster the edge ecosystem

With the edge AI opportunity stemming from the central cloud, the hyperscalers trim edge portfolios and focus investments elsewhere, creating new openings for edge pure plays

Over the past several months, many of the hyperscalers have reevaluated their edge portfolios to focus more on their central cloud services, which is where most of the AI opportunity will land. For example, AWS discontinued edge hardware in the Snow family and, later this year, will sunset features in its IoT Device Management service. In our view, these developments speak to customers’ preference for consuming edge computing as an extension of the central cloud; this includes customers migrating workloads to the cloud and building AI models that can be brought to the edge for a particular use case. This proposition will continue to challenge the “edge-native” players, including many hardware vendors and software pure plays that feed on demand from customers crafting their edge strategies from the ground up. But at the same time, it unlocks more opportunities within the ecosystem. For example, the hyperscalers’ pivot away from first-party IoT services welcomes more openings for IoT specialists that can attach themselves to an AI use case, while allowing the hyperscalers to strategically focus on AI and build the capabilities and infrastructure to support customers’ AI workloads regardless of where they are deployed. In some cases, we could see the hyperscalers investing in AI workloads to actually create an edge ecosystem.

AI use cases at the edge already exist

AI has been a foundational technology in enterprise edge computing for years and continues to support growth of the enterprise edge market, which TBR expects will expand from $58 billion in 2024 to $144 billion in 2029. TBR’s enterprise edge spending forecast has not increased significantly from our previous guidance in 2024, which already incorporated our long-standing assumption that AI will propel market growth. TBR expects that the industrywide focus on generative AI (GenAI) will likely lead to increased adoption of edge computing but that the bulk of enterprises embarking on these projects in 2025 will focus on piloting and adoption of cloud and centralized AI resources.

Compared to other deployment methods, edge expansion still lags

According to TBR’s 2Q24 Infrastructure Strategy Customer Research, 34% of respondents expect to expand IT resources at edge sites and branch locations over the next two years. But this is noticeably lower than the 55% who plan to expand IT resources within centralized data centers, while the central cloud and managed hosting are also gaining more traction. The possibility of large capital outlays and an unclear path to ROI remain the biggest adoption hurdles to edge technology, with some customers exploring other alternatives that have a clearer ROI road map.

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.

Although there is general interest in edge across industries, demand varies by vertical, with surveillance and quality assurance use cases particularly strong in healthcare and consumer goods

Overall, the edge use cases that garnered the most interest from respondents were security & surveillance, quality assurance, and network (e.g., vRAN). Despite the AI hype, real-time analytics was the fourth most popular use case, although other use cases may embed these technologies.

Interest in deploying a certain use case is often industry-specific, such as above-average interest in security & surveillance among respondents in the consumer goods vertical.

Enterprise respondents had an above-average interest in remote asset management.

Cloud vendors look to partners to bridge the gap between IT and OT buyers and drive traction for edge solutions

TBR’s newly launched Voice of the Partner Ecosystem Report includes survey results from alliance partnership decision makers across three groups of vendors: OEMs, cloud providers and services providers. For cloud respondents, edge computing ranked No. 4 out of 26 technologies as the area that will drive the most partner-led growth in the next two years. This stems from the big gap that still exists between IT and OT buyers, and an overall optimism about cloud vendors’ ability to use partners to drive adoption.

OT stakeholders understand the edge but are not necessarily thinking about IT solutions through the lens of their own processes. Because of this, edge hardware vendors and cloud providers benefit from partnering with edge-native software vendors that have permission from OT buyers and can help edge incumbents sell solutions, including attached software and services. The dynamics between IT and OT departments reinforce the importance of the vendor ecosystem in the enterprise edge market.

Dell infuses GenAI into its NativeEdge edge operations platform, enabling customers’ edge environments to operate like their centralized data centers

TBR Assessment: Dell is working to build an ecosystem surrounding its hardware, primarily through expanding its NativeEdge operations software, enrolling ISV partners to create validated solution designs for specific industry use cases, and designing new services to facilitate edge infrastructure rollouts. Dell’s edge approach is increasingly intertwined with its AI strategy and its close partnership with NVIDIA, as Dell seeks to capitalize on growth opportunities through AI use cases that require video analytics, speech analytics and inferencing at edge locations. This approach expands Dell’s addressable market as its previous edge play was primarily focused on computervision solutions, and NVIDIA’s AI Enterprise software portfolio will open the door to a greater variety of use cases. Dell’s edge hardware portfolio includes not only ruggedized servers and gateways but also storage, backup and hybrid cloud solutions.

Key Strategies

• Build validated designs for verticals with high growth potential, including telecom, retail and manufacturing.
• Leverage Dell NativeEdge, an edge operations software platform, to add value on top of the company’s diverse infrastructure portfolio.
• Simplify edge management using AI, and add edge management features that support the needs of AI-based workloads.
• Partner with leading ISVs to provide an enhanced edge orchestration experience.

Recent Developments
In November SVP of Edge Computing Gil Shneorson outlined how Dell NativeEdge 2.0, Dell’s edge orchestration software, better enables AI workloads at the edge. Shneorson emphasized that although AI workloads have existed at the edge for years, Dell Technologies’ (Dell) orchestration platform utilizes AI to make these workloads easier to deploy and manage. One example is a new software feature that offers high-availability clustering, which provides automatic application failover and live virtual machine migration.

The scope of Dell-branded devices and infrastructure that can be managed under NativeEdge is broad — including servers, high-end storage and backup systems, edge gateways, and even workstation PCs. These various types of endpoints can be clustered through the software to act as a single system.


Dell has also updated NativeEdge to address other customer needs surrounding AI, including data mobility and support for NVIDIA Inferencing Microservices (NIMs).

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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.
 

 

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.
 

 

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.
 

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.

TBR Spotlight Reports represent an excerpt of TBR’s full subscription research. Full reports and the complete data sets that underpin benchmarks, market forecasts and ecosystem reports are available as part of TBR’s subscription service. Click here to receive all new Spotlight Reports in your inbox.

Post Updated: Aug. 6, 2025

While tight discretionary spending challenged consulting growth during 1Q25, vendor consolidation, cloud and infrastructure modernization, and demand for cost takeout contributed to revenue

Outlook: TBR estimates trailing 12-month (TTM) revenue growth for the benchmarked IT services vendors will be 2.2% year-to-year in 2025, higher than 2024 revenue growth of 0.9% year-to-year. The market dynamics have not changed since 3Q23, when the uncertain macroeconomic environment began to pressure discretionary spending and consulting activities while fueling a wave of outsourcing demand around infrastructure and application modernization, productivity improvement and cost optimization. In 2025 TBR expects clients will focus on cost optimization and mainly invest in large transformation programs rather than small consulting awards. Common themes, including vendor consolidation, cloud and infrastructure modernization, and demand for cost takeout, will fuel performance across multiple IT services providers. The manufacturing sector, which has experienced revenue growth challenges, might be facing the biggest potential downturn as buyers are lowering budgets and/or delaying decisions, largely due to the ongoing uncertainty around the Trump administration’s fluid discussions on tariffs. Although agency spending and headcount cuts by the Department of Government Efficiency (DOGE) will negatively impact vendors’ performance in the U.S. public sector, we expect new consulting opportunities to emerge around efficiency improvement and engagements in areas such as defense, border security, maritime and space, and intelligence.

Key Vendors: Accenture remained the largest vendor in TBR’s IT Services Vendor Benchmark in terms of revenue and headcount and was No. 9 in TTM revenue growth in 1Q25. Accenture’s proven strategy, paired with stakeholder trust, will allow the company to navigate choppy demand amid heightened uncertainty, as long it balances pricing agility with AI use. Tata Consultancy Services (TCS) was No. 3 in TTM revenue and No. 12 in TTM revenue growth in 1Q25. TCS’ “value-to-volume” approach, which combines competitive pricing, extensive scale and diversified offerings, is key for the company to win and retain clients. IBM, which was No. 4 in TTM revenue and No. 21 in TTM revenue growth, will continue to gain ground in areas such as generative AI (GenAI) and agentic AI due to IBM’s early advances in AI and diversification of revenues through new areas of expansion.

Market Overview: TTM IT services revenue grew 1.6% year-to-year in 1Q25, compared to year-to-year increases of 0.6% in 4Q24 and 2% in 1Q24. Tight discretionary spending, an extended buyer decision cycle, and IT services vendors’ focus on long-term and large-scale managed services are pressuring near-term revenue realization. However, vendors were able to stabilize profitability in 1Q25, with 23 of the 31 benchmarked vendors improving TTM operating margins year-to-year due to tight expense management, productivity initiatives and improved utilization, increased use of automation, GenAI and agentic AI, and skills-based hiring aligned with market demand.

IT service vendors expand partnerships with NVIDIA and Google Cloud to develop agentic AI and GenAI capabilities tailored to improve customer experience and address industry-specific needs

Quarterly focus: Agentic AI

TBR Assessment: In March the Capgemini Research Institute published a report, Unleashing the value of customer service: The transformative impact of Gen AI and Agentic AI, that discusses how “generative AI (GenAI) and agentic AI are emerging as key tools for organizations to make a transformative shift, elevating customer service to a strategic value driver.” The research also finds that “only 49% of organizations consider themselves prepared for offering AI/GenAI-powered customer service, indicating the need for a critical shift in operating model, transformation of digital solutions and uplift of their data foundation.” The findings suggest multiple IT services vendors are moving in the right direction with the development of their AI offerings. The ones with established portfolios around the advise-build-run stack and established relationships with technology partners will gain the most opportunities. Vendors’ successful expansion and differentiation in AI will depend on their ability to develop resources with skills related to technologies and industries and deliver business outcomes.

Examples of recent vendor activities
Capgemini expanded its relationship with Google Cloud and announced agentic AI offerings enabled by Google Cloud’s AI technology to transform the customer experience. The industry-specialized agentic AI solutions will initially target the telco, retail and financial services sectors and will improve customer service through intelligent automation and customer insights. Capgemini also expanded its partnership with NVIDIA to provide customized, industry-specific agentic AI solutions enabled by NVIDIA NIM and an agentic gallery to drive business transformation and accelerate enterprise AI adoption. In April Capgemini announced the establishment of an AI Center of Excellence (CoE) in Cairo to enable enterprise GenAI and agentic AI adoption. The CoE will be an AI hub that drives research and development, collaborates with local academic organizations and technology partners, and invests in talent development. The new AI hub will provide industry-specialized solutions that help clients improve customer experience and drive business value.

HCLTech extended its relationship with Google Cloud to benefit from Google Agent Space and its agentic framework, allowing for greater data manipulation and analytics as well as enabling users to align with their customers’ needs. HCLTech aims to create AI agents that support decision making and operations to enhance customer interactions.

IBM released the AI Integration Services portfolio, which enables clients to transform business processes through agentic AI utilizing clients’ preferred AI and cloud platforms. IBM announced a collaboration with NVIDIA around integrations based on the NVIDIA AI Data Platform reference design to help clients build, scale and manage GenAI and agentic AI solutions. IBM Consulting will utilize the AI Integration Services offerings to transform and govern business processes with agentic AI based on NVIDIA Blueprints that are industry-specialized, such as autonomous inspection and maintenance in manufacturing as well as video and data analysis and anomaly response in energy.

In January Accenture launched AI Refinery for Industry, built on NVIDIA Foundry, with a collection of 50 industry agent solutions targeting clients across industries such as telecommunications, financial services, insurance, manufacturing, healthcare and retail.

Cognizant expanded its relationship with NVIDIA to create AI agents, industry large language models (LLMs), digital twins and infrastructure designed for AI. Adding NVIDIA’s AI technology for LLMs, digital twins and applications strengthens Cognizant’s Neuro AI platform.

To manage resources, vendors are selectively hiring in-demand skills and freshers, upskilling and reskilling to align workforces with client demand, and conducting small-scale layoffs

Average total headcount for the 31 benchmarked vendors increased 1.1% year-to-year in 1Q25, an improvement from a 2.1% decrease in 1Q24 and a 0.7% increase in 3Q24. TCS added employees in 2024, returning to net headcount growth, and this modest positive trend is expected to continue into 2025, with increased fresher hiring to maintain a robust talent pipeline. Upskilling initiatives and promotion activity underscore the company’s commitment to nurturing its existing talent. Furthermore, campus hiring plans remain on track, and we believe TCS’ flexible resource management strategy will enable the company to quickly scale up to meet market demands if client spending improves. Despite Accenture’s use of an automated platform that enables service delivery, it is evident the company continues to recalibrate the composition of its workforce, adding professionals with skills in cloud, analytics, digital marketing, cybersecurity and AI to use its scale — headcount reached 801,099 in 1Q25 — as a lever to compete rather than trying to build a sustainable nonlinear revenue growth model. Infosys reinstated a return-to-office program that now requires employees to work on-site 10 days per month. Infosys appears to have laid off about 0.1% of its total workforce, which TBR views as a move to calibrate the demand and supply sides of Infosys’ business.

Average onshore headcount rose 3.1% year-to-year in 1Q25, improving from flat headcount growth year-to-year in 4Q24 and a decline of 1.3% year-to-year in 1Q24. Average nearshore and offshore headcount was flat year-to-year in 1Q25, lower than the 1.0% year-to-year increase in 4Q24 but an improvement from a 2.5% year-to-year decrease in 1Q24. Infosys is bracing for upcoming disruptions related to the Trump administration’s tariffs. Although the tariffs have been focused on goods rather than services, it would not be surprising for the administration to explore the latter route. Infosys’ onshore presence is strong, but the company’s offshore base, which is predominantly India-based, hovers at 82% to 84%, making Infosys vulnerable to any services-related tariffs. Infosys’ onshore presence is strong, but the company’s offshore base, which is predominantly India-based, hovers at 82% to 84%, exposing Infosys to potential tariff vulnerabilities. In the most recent H-1B visa approval bulletin, Infosys ranked as the second-highest employer relying on H-1B visa workers in the U.S., securing 8,140 visas in 2024. We estimate Infosys’ U.S. headcount to be over 35,000, with over 26,000 of those being American workers.

Revenue in the Americas benefits from improving demand in financial services, but disruptions from consulting cuts due to DOGE initiatives will push vendors to diversify revenue streams

While vendors benefited from an increase in financial services activities, they also prepare for DOGE-related setbacks in consulting. For example, 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. Deals in financial services mainly revolved around migration and modernization to support adoption of new technology. Kyndryl will migrate Mexico-based Grupo Visa’s IT systems to SAP S/4HANA on Google Cloud using RISE with SAP services. TCS will Deploy TCS BaNCS Global Securities Platform to streamline asset servicing for U.S.-based Northern Trust. Infosys deepened its relationship with U.S.-based Citizens Bank to add AI-ready and cloud-native solutions as part of its ongoing application services support and the bank’s efforts to exit its data center operations.

Expansion of public sector activities enables Accenture to alleviate potential revenue growth pressures in North America due to DOGE initiatives and sustain growth leadership among peers

Accenture is facing potential disruptions within Accenture Federal Services (AFS) in the U.S. due to DOGE initiatives that have put federal contractors including Accenture on edge, given the company’s extensive work supporting federal agencies. The initial DOGE push has primarily targeted consulting projects. We estimate that Accenture’s overall business consulting revenue trends at about 14% of total revenues, which means that $750 million to $1 billion of AFS’ annual revenue is at risk of disruption. We believe Accenture’s holistic portfolio and long-term relationships with many government agencies could help the company maintain its incumbent position. However, with federal systems integrator competitors facing similar challenges, we expect some of them to try to contest awards AFS had previously won and overtake AFS’ position through more flexible pricing options or packaged service offerings. For example, Booz Allen Hamilton and Leidos have filed a protest with the Department of Energy to review a $3.5 billion contract for IT support that Accenture won in January 2025. Meanwhile, the potential setback within AFS due to DOGE initiatives to review and justify consultants’ work will likely pressure its staffing levels, at least in the short term. While some layoffs might be inevitable, we believe Accenture will play it safe and try to retain top talent by moving them to projects with commercial clients.

At the same time, Accenture is positioning for expansion in the public sector in Europe. In April 2024 Accenture acquired Intellera Consulting in Italy, adding 1,400 employees to Accenture’s regional operations to support public administration and healthcare sector clients. In January 2024 Accenture acquired U.K.-based 6point6 to support Accenture’s efforts to rotate U.K.-based skills in areas such as cloud, data and cybersecurity and create a conduit for new revenue opportunities with clients in healthcare and the public sector seeking to modernize IT infrastructure. TBR expects Accenture’s investments across Europe within the last 18 to 24 months in the U.K. (health and capital projects) and Italy (public services and capital projects) will help fuel growth in the company’s health and public service segment. Investments in Industry X capabilities, as well as sovereign cloud offerings with partners like Amazon Web Services and Google Cloud, will also bolster Accenture’s regional opportunities as European Union countries look to increase spending on defense and infrastructure.

TBR Spotlight Reports represent an excerpt of TBR’s full subscription research. Full reports and the complete data sets that underpin benchmarks, market forecasts and ecosystem reports are available as part of TBR’s subscription service. Click here to receive all new Spotlight Reports in your inbox.

Expansion accelerated in the federal IT market in 3Q24 as renewed M&A activity by several federal IT vendors augmented strong, stable demand for digitally based IT modernization

Statutory year-to-year revenue growth for the 11 benchmarked vendors in the U.S. federal market on a weighted average basis rose 100 basis points sequentially, increasing from 8.3% in 2Q24 to 9.3% in 3Q24. Acquisitions by AFS (Cognosante), BAH (PAR Government Systems Corporation [PGSC]), CACI (Quadrint in 1Q24 and Azure Summit Technologies [AST] in 3Q24), CGI Federal (Aeyon), General Dynamics Technologies (Iron EagleX) and KBRWyle (LinQuest) generated an inorganic tailwind to overall market growth of roughly 180 basis points in 3Q24.
 
Federal IT executives (e.g., CACI CEO John Mengucci) have indicated that the M&A market became more buyer-friendly during 2024, prompting several benchmarked vendors to leverage acquisitions to address portfolio gaps in multiple areas, including digital transformation (DT) and emerging technologies for classified defense and intelligence operations. Vendors have been acquiring, and will continue to hunt for, smaller peers with scalable cloud and digital modernization capabilities as well as deep existing (and likely cloud-related) relationships with federal agencies.
 
Underpinning inorganic market growth is enduring robust demand for digitally transformative technologies in AI, cloud, analytics and data science, as well as the continued need to upgrade baseline IT infrastructures across the federal sector to accommodate digital modernization.
 

Civil agencies continue to aggressively invest in cybersecurity, health IT and Agile-based software systems, leading to sustained double-digit civil sector IT spending growth

Weighted average growth in the civilian sector accelerated 80 basis points sequentially, rising from 9.6% in 2Q24 to 10.4% in 3Q24. Vendors including BAH and Leidos have posted multiple quarters of double-digit growth in their respective civil units as of 3Q24, with robust rates of growth expected to persist well into 2025. Sector growth was sustained at or near 10% throughout federal fiscal year 2024 (FFY24) as demand among civil agencies remains robust for comprehensive zero-trust and cyber incident support solutions, particularly by the U.S. Department of Homeland Security (DHS), the Department of Health and Human Services (HHS), the IRS and NASA.
 
Attracting and retaining cybersecurity talent also remain top priorities for nearly all civilian agencies, which are tapping vendors like AFS, BAH and Deloitte Federal for human resource advisory services. NASA launched an eight-year, $2 billion program, NASA Consolidated Applications and Platform Services (NCAPS), during 3Q24 to develop and deploy Agile-based software for over 200 IT systems, with vendors including CACI among the primary awardees.
 
Health IT is generating new revenue and profit streams for the benchmarked vendors, and agencies including the HHS (and its subagencies, CMS, the CDC and NIH) are seeking agencywide AI and analytics adoption services. The top five benchmarked vendors in year-to-year civilian sector revenue growth in 3Q24 were AFS (25%), BAH (16.1%), SAIC (10.8%), Maximus (9.3%) and CACI (7.9%).

Federal IT spending remained robust throughout FFY24, and the market appears poised for another strong year in FFY25, even as CY25 begins with yet another continuing resolution

TBR projects weighted average year-to-year federal IT services revenue growth for the 11 benchmarked companies will decelerate to between 8% and 8.5% in 4Q24, down from 9.3% in 3Q24. We anticipate weighted average year-to-year revenue growth in the defense sector will fall to between 6.8% and 7.3% in 4Q24, down from 8.6% in 3Q24, while civilian revenue growth remains between 10% and 10.5% in 4Q24, in line with the 10.4% increase in 3Q24.
 
Four leading federal systems integrators — BAH, CACI, Leidos and SAIC — as well as smaller federal IT peer KBRWyle elevated their respective revenue growth forecasts for their current fiscal year when tendering 3Q24 fiscal results, indicators that the federal IT macro environment will remain mostly growth-friendly through FFY25.
 
The new federal fiscal year began with a continuing resolution (CR) that extended government funding until Dec. 20, when a subsequent CR was enacted to fund federal operations until March 14, 2025. Further CR extensions in FFY25 would cause budget delays that could impede the ability of federal IT contractors to convert backlog into revenue, but most vendors expect revenue growth to remain on a solidly upward growth trajectory in FFY25.
 

 

Pressures on resource management teams at federal IT contractors continue easing as the federal technology labor market returns to pre-pandemic rates of employee attrition and retention

Federal IT vendors are expanding training of their workforces across a variety of emerging technologies, including AI, analytics, cloud, EW, SIGINT and communications. The competition for talent in federal IT continues to cool, according to executives at several vendors, who have indicated that current trends in the labor market in federal technology are reminiscent of those seen in 2020. Recruiting and upskilling initiatives at federal IT vendors emphasize skills in AI/GenAI, machine learning and security technologies.

Spotlight on IT and professional services vendors serving the public sector: Resource management

Leidos CFO Chris Cage noted in the company’s 3Q24 earnings discussion that employee retention levels remain at all-time highs, as the federal IT labor market continues to cool after the hyper-competitive, post-pandemic period. BAH CFO Matt Calderone indicated his firm received over 100,000 applications in one month during 3Q24.
 
Amanda Christian, CACI SVP of Contracts and Subcontracts, is leading an effort to consolidate the company’s finance, accounting, contracts and subcontracts activities to enhance cross-collaboration and improve the company’s already strong win rates on net-new awards and recompetes.
 
Peraton continued to support Dakota State University’s CybHER Security Institute this summer to encourage young girls to pursue careers in cybersecurity. The company has recently ramped up its efforts to develop a cybersecurity talent pipeline. Peraton has promised to double its related apprenticeships, hire over 200 interns, set up an initiative to help people pivot into cybersecurity, and expand its ties with community colleges over the course of 2024.