US law firms face tech-driven shift in profit boom

Thomson Reuters and Georgetown Law's Centre on Ethics and the Legal Profession have reported a sharp shift in the US legal market, alongside strong demand growth and rising profitability among the largest firms.

The 2026 Report on the State of the US Legal Market said profits per lawyer at Am Law 100 firms have risen 53.7% since 2019. It also cited broad increases in spending on technology and lawyer pay as firms respond to changes in client expectations and intensifying competition.

Raghu Ramanathan, President, Legal Professionals, Thomson Reuters, described a turning point for law firms as clients push on value and firms face higher costs.

"Law firms are facing a fundamental shift in the legal industry's economic landscape, standing at a critical inflection point where they must navigate evolving client demands, rising expenses and a necessary transformation of their operating models," said Raghu Ramanathan, President, Legal Professionals, Thomson Reuters.

Demand surge

The report pointed to sustained demand growth through 2025. It said law firms averaged 2.5% demand growth across the year and reached 4.4% in July. It characterised the performance as notable given comparisons with what it called record results in 2024.

It identified several forces behind the market shift. These included changing dynamics between clients and firms, wider economic instability, and technology-led disruption. The report also warned that the factors driving near-term peaks could also weaken the foundations of current operating models.

"What makes this moment particularly treacherous is that the very forces creating today's peaks are simultaneously undermining the ground beneath them," the report notes.

Technology spending

The report said firms raised technology investment by an average of 9.7%. It described an environment in which firms have moved beyond routine upgrades and put greater emphasis on adoption of generative AI.

The report linked technology investment to how work gets done inside firms. It said the key question has shifted from overall spending levels to how deeply technology becomes integrated into day-to-day practice.

It also cited findings from the 2025 Future of Professionals report. It said law firms with a formal AI strategy were 3.9 times more likely to experience what it called critical benefits than firms without significant plans for AI adoption.

Alongside generative AI, the report framed technology as one part of a broader response to client expectations around value and service delivery. It said firm leaders should focus on deployment strategies that produce measurable results.

Talent costs

The report said direct spending on lawyer compensation rose 8.2%. It described the increase as broad-based across seniority levels rather than concentrated on a small number of high-profile hires.

"this isn't targeted spending on a few rainmakers or strategic lateral hires, rather it's broad-based compensation growth across every level," the report notes.

The report framed the current environment as a combined contest for technology and talent. It said firms have faced pressure to maintain service levels amid rising demand, while also responding to competitive recruitment markets.

Operating models

The report argued that recent market conditions do not remove the need for deliberate management decisions. It said leadership teams still control elements such as rate strategies, talent management, and technology deployment. It also highlighted the impact of what it called mobile demand as another factor leaders need to manage.

Ramanathan said the market could split between firms that adopt more technology-led models and those that move toward narrower, specialist positioning.

"The shifting landscape will unlock further demand and lead certain law firms to becoming fully tech-centric employing tech-pricing structures, as other law firms move towards being an elite, partner-heavy boutique dedicated to delivering highly specialized and bespoke legal counsel. The question isn't whether traditional operating models can survive but whether law firms are committed to truly transform," said Ramanathan.

The report set out three areas it described as necessary shifts for firms. It pointed to pricing models which it said no longer match how legal work is performed. It also cited strengthening client trust in a more selective buying environment. It highlighted technology deployment approaches which it said should prioritise measurable value rather than marketing.

Ramanathan said decisions taken now would shape which firms lead the next stage of the market's development.

"The law firms that will define the next era of legal services will be determined not by how much they invest in technology and talent, but by how boldly they reimagine their entire operating model. The winners won't necessarily be determined by size or legacy, but they'll be the firms that act decisively now to align with the future their clients are already demanding," said Ramanathan.