AI Fuels Indian IT Growth: Revenue Streams Emerge and Investments Soar

Indian IT services companies are increasingly highlighting the impact of Artificial Intelligence (AI) on their revenues and future growth strategies. Following Accenture's lead in quantifying AI-driven earnings, HCL Technologies has begun disclosing that nearly 3% of its total revenue now comes from advanced AI initiatives. Meanwhile, industry giant Tata Consultancy Services (TCS) is focusing on building AI-specific data centers within India to support future demand.

These developments signal a significant shift as IT firms move beyond pilot projects and into tangible AI implementations for their clients. This transition is expected to unlock new and larger revenue opportunities, especially as enterprises accelerate their adoption of AI technologies.

Emerging AI Revenue Streams

• Accenture has been actively reporting AI-generated revenue for almost a year, setting a precedent for the industry.
• HCL Technologies is now providing a clear breakdown, revealing that advanced AI constitutes close to 3% of its current revenue.
• The broader trend sees most IT companies announcing partnerships with major tech and chip firms, alongside numerous pilot projects over the past six to eight quarters.

TCS Invests in AI Infrastructure

• Tata Consultancy Services is making substantial long-term investments, planning to build a 1 Gigawatt (GW) AI data center in India over the next 5-7 years, in partnership with TPG.
• This significant investment, estimated at up to Rs 18,000 crore ($2 billion), underscores the anticipated demand for AI-specific infrastructure.
• K Krithivasan, CEO & MD of TCS, highlighted three key growth engines for the AI era: hyperscaler expansion, new AI-native companies, and increasing enterprise and public-sector AI needs.
• He noted that India's capacity buildout is in its early stages, with a focus on facilities catering exclusively to AI workloads where supply currently lags demand.

Analyst Outlook and Market Expectations

• Nomura analysts believe the addressable market for IT services companies is expanding with each technological cycle, emphasizing the persistent role of system integrators in managing complex IT landscapes, especially in the AI domain.
• They anticipate that clients are moving from proof-of-concept projects to standalone AI implementations, with larger revenue pools emerging as enterprise AI adoption accelerates over the next 12-18 months.
• This adoption is also expected to boost demand for cloud services and data standardization.
• Following a sluggish FY25 for the Indian IT sector due to macro uncertainties, FY26 is projected to be better, with global corporations increasingly focusing on cost optimization deals infused with AI.
• Nomura expects average FY27F EBIT margins to improve by 30 basis points for large-cap IT companies and 50 basis points for mid-caps over FY26F.
• Motilal Oswal's India strategy report indicates that incremental spending will shift towards AI software and services, mirroring the cloud transition from 2016-18.
• The firm expects AI services to reach an inflexion point in the next 6-9 months, driving significant growth in the second half of FY27 and a full-scale uptick in FY28 as enterprises move from pilots to broad deployment.

Impact

• This news directly impacts the Indian IT services sector by signaling a strong growth driver in AI.
• It suggests renewed investment and potential for revenue acceleration for major players.
• Increased AI adoption by enterprises worldwide will create significant opportunities for Indian IT firms.
• Impact Rating: 9/10

Difficult Terms Explained

• AI-generated revenue: Revenue earned from services or products directly created or significantly enhanced by Artificial Intelligence technologies.
• AI data centres: Specialized facilities designed to house and power the high-performance computing hardware required for AI workloads, such as training and running AI models.
• Proof-of-concept (PoC): A small-scale project or study to test the feasibility and potential of a concept or technology before committing to a full-scale implementation.
• Standalone implementations: Deploying AI solutions as independent, functional systems rather than as part of a larger, integrated project.
• Hyperscaler expansion: Growth and increased capacity by major cloud computing providers (like Amazon Web Services, Microsoft Azure, Google Cloud) that offer massive, scalable computing resources.
• AI-native companies: Businesses built from the ground up with AI integrated into their core products or services.
• EBIT margin: Earnings Before Interest and Taxes margin, a profitability ratio that measures a company's operating profit as a percentage of its revenue.
• FY25F/FY26F/FY27F/FY28F: Fiscal Year followed by an 'F' indicates a forecast or projected year (e.g., FY25F refers to the projected financial results for the fiscal year 2025).
• Basis points (bp): A unit of measure used in finance, equal to one-hundredth of a percentage point (0.01%). So, 30bp is 0.30% and 50bp is 0.50%.
• Inflexion point: A point at which the trend of a variable (like growth) changes direction or rate.