Governments and schools shift to modern cloud architectures for efficient, well-governed AI operations, ISG Provider Lens^® report says

U.S. public sector organizations are modernizing critical infrastructure through phased hybrid cloud strategies that strengthen operational resilience and enable secure AI adoption, according to a new research report published today by Information Services Group (ISG) (Nasdaq: III), a global AI-centered technology research and advisory firm.

The 2026 ISG Provider Lens^® Private/Hybrid Cloud — Data Center Services report for the U.S. Public Sector finds that state and local governments and educational institutions are adopting new cloud infrastructure in stages to reduce risk. Agencies are updating legacy platforms for functions such as payroll, healthcare administration and public safety while maintaining uninterrupted delivery of essential services. This measured approach allows organizations to introduce new technologies without disrupting day-to-day operations or compromising the reliability of complex IT environments.

"Wholesale cloud migration is no longer the standard strategy of agencies that need to modernize IT," said Nathan Frey, ISG partner and Public Sector lead. "There is a growing emphasis on ensuring continuity, accountability and long-term operational value. Hybrid operating models allow agencies to update essential systems while maintaining the stability required for critical public services."

Public sector organizations are also expanding AI initiatives through private and hybrid environments designed for sensitive workloads. Agencies are applying AI to education, citizen services and public safety while building in data sovereignty, auditability and controlled operations. They are adopting infrastructure that supports secure AI implementation without compromising oversight or operational integrity.

Budget constraints and limited IT resources are leading agencies to seek higher efficiency through automation-led managed services and improved financial visibility. Organizations are reducing manual effort, improving system reliability and accelerating incident resolution while maintaining human oversight for critical decisions. They expect transparent pricing and integrated FinOps capabilities to simplify long-term planning and strengthen accountability.

Public sector organizations are placing greater emphasis on procurement models that simplify technology adoption and improve accountability. Increasingly, they favor established contracting vehicles and providers that can demonstrate clear ownership of project outcomes. This approach helps organizations accelerate infrastructure initiatives while meeting policy requirements and maintaining flexibility as operational needs evolve, ISG says.

"Successful modernization requires balancing new infrastructure capabilities with the strict governance and operational discipline expected in public sector environments," said Shashank Rajmane, ISG principal analyst and lead author of the report. "Service providers that combine hybrid cloud expertise with security guardrails and measurable operational outcomes for AI workloads are well positioned to meet these evolving requirements."

The report also explores other trends affecting U.S. public sector private and hybrid cloud services, including increasing demand for sustainable colocation services with auditable environmental reporting and the growing need for stronger observability and integrated operations to manage increasingly complex hybrid environments.

For more insights into the private and hybrid cloud challenges faced by public sector organizations in the U.S., along with ISG’s advice for addressing them, see the ISG Provider Lens Focal Points briefing here.

The report evaluates the capabilities of 37 providers across three quadrants: AI-ready Infrastructure Managed Services, Managed Cloud Hosting and Resilient Infrastructure Services and Sustainable Colocation Services.

It names NTT DATA as a Leader in all three quadrants. CGI, Kyndryl, Rackspace Technology and Unisys are named as Leaders in two quadrants each. Accenture, Digital Realty, Equinix, HPE, IBM, Iron Mountain, TCS and TierPoint are named as Leaders in one quadrant each.

In the area of customer experience, CS Global IT is named the global ISG CX Star Performer for 2026 among private and hybrid cloud service providers. CS Global IT earned the highest customer satisfaction scores in ISG's Voice of the Customer survey, part of the ISG Star of Excellence™ program, the premier quality recognition for the technology and business services industry.

The 2026 ISG Provider Lens Private/Hybrid Cloud — Data Center Services report for the U.S. Public Sector is available to subscribers or for one-time purchase on this webpage.

About ISG

ISG (Nasdaq: III) is a global AI-centered technology research and advisory firm. A trusted partner to more than 900 clients, including 75 of the world’s top 100 enterprises, ISG is a long-time leader in technology and business services that is now at the forefront of leveraging AI to help organizations achieve operational excellence and faster growth. The firm, founded in 2006, is known for its proprietary market data and research, in-depth knowledge and governance of provider ecosystems, and the expertise of its 1,500 professionals worldwide working together to help clients maximize the value of their technology investments.

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Erik Arvidson, Matter Communications for ISG

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