TCS AI breakout stands out as peers meld AI into existing services models
The other four integrate AI approaches with existing software services business models.
TCS’s move has divided analysts, who have already highlighted concerns that AI is eating into revenues of domestic software services companies amid existing tensions surrounding macroeconomic uncertainties.
On October 9, TCS, the country’s largest IT outsourcing provider, announced its intention to set up a 1 GW (gigawatt) AI data center in India; This marks the biggest milestone since it went public in August 2004.
This is in stark contrast to their respective IT services companies Infosys Ltd, HCL Technologies Ltd, Wipro Ltd and Tech Mahindra Ltd sticking to their existing software services model of incorporating AI into their IT offerings.
Most of them have found a special moat. While HCL is investing in IP-focused solutions, Infosys is doubling down on enterprise AI, while Tech Mahindra is focusing on building standalone AI models.
bold, uncertain
This AI pivot will of course not be easy for TCS. During the company’s post-earnings call with analysts, company management outlined plans to invest more than $6.5 billion in the data center over a five- to seven-year period. It will partner with other companies to finance this project through a mix of debt and equity.
Management attributed this decision to expanding its presence in the AI technology cycle to become “the world’s largest AI-led technology services company.”
“If you look at the entire AI stack, starting from the infrastructure as the initial layer, to the applications and the intermediary applications at the (top) layer, that gives us the scope of the AI technology stack,” Aarthi Subramanian, chief operating officer of TCS, said during the analyst call.
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The company will sell the solutions to pure AI providers, deep tech companies, hyperscalers, the Indian government and local businesses. Hyperscalers refer to large-scale cloud services providers.
While TCS aims to expand into the asset-heavy AI infrastructure space, its close rival has rejected the idea.
“I think we’re comfortable with the strategy we have together,” Infosys CEO Salil Parekh said in response to Mint’s question during the company’s post-earnings press conference.
Analysts were divided
For now, analysts are divided on TCS’s move.
“This is a step in the right direction, but too small a step in the context of the global AI investment onslaught and India’s near-total dependence on US tech giants for AI,” HSBC analysts Yogesh Aggarwal, Prateek Maheshwari and Sagar Desai wrote in an Oct. 13 note.
A second broker pointed out limited synergies with TCS’s existing service offerings.
“TCS will not run cloud workloads or offer managed cloud services; the data center will function as a standalone colocation site. This means low technology density, limited overlap with TCS’ core services portfolio and hence minimal direct synergies,” Motilal Oswal Financial Services analysts Abhishek Pathak, Keval Bhagat and Tushar Dhonde said in an Oct. 9 report.
For colocation data centers, the data center owner builds the physical infrastructure, manages the facility, and controls the building, power, and cooling of the servers. Procures and manages customer equipment.
A third brokerage firm said the company’s operating margins could be affected.
“We think this direction could offer new potential revenue streams but could negatively impact margins. TCS management shared that it could take 18 to 24 months to generate data center-related revenue,” BMO Capital Markets analysts Keith Bachman, Adam J. Holets, Bradley Clark and Jonathan Stein wrote in an Oct. 9 note. he said.
Infy’s enterprise AI bet
Meanwhile, Infosys’ Parekh, who is also among the longest-serving CEOs of Indian IT, shed light on the company’s focus on enterprise AI.
“We do a lot of projects with our customers on enterprise AI that focuses on growth, like the sales function or the marketing function, or focuses on a lot of their processes, focusing on cost optimizing them on customer service and core development,” Parekh said.
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The company has delivered more than 2,500 GenAI and 200 agency AI client projects and developed custom vertical solutions through its flagship AI platform Topaz, which includes more than 400 agencies. (GenAI, short for generative AI, refers to machine learning models that generate new content based on patterns taught to them from large data sets. Agentive AI works autonomously, with minimal human involvement, and iteratively toward a goal depending on contexts.)
However, BMO analysts added that they are not so sure about AI’s contribution to Indian IT budgets.
“We think it will be difficult for IT service providers to balance AI deployment productivity with increased work, and we don’t think AI will add to budgets at this point,” BMO analysts wrote in another Oct. 16 note.
IP-driven AI at HCLTech
While Infosys is investing in enterprise AI solutions, third-place HCLTech is betting on selling its own intellectual property built on layers of intelligence from OEMs (original equipment manufacturers) such as OpenAI and Nvidia.
“This is a sweet spot; we believe it is futile to compete with rich world OEMs on R&D (research and development),” Motilal Oswal analysts said in a Sept. 13 note.
The Noida-based company also announced $100 million in AI revenue, making it one of the top five companies classifying the business based on the new technology.
Before HCLTech, Accenture Plc was the only major IT outsourcing company reporting revenue from AI. The world’s largest IT services company generated $2.7 billion in revenue from new technology; This accounts for roughly one-fifth of HCL’s total revenue in the last financial year.
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Smaller peers haven’t made any big-bang announcements regarding AI. The fourth largest Wipro has announced Wipro Intelligence, its suite of artificial intelligence platforms and solutions. The Bengaluru company is also incorporating artificial intelligence into its solutions for its customers.
“Our delivery platforms are already accelerating efforts from software development, infrastructure and cloud to business process operations. On the industry side, we have re-engineered core business processes and developed more than 200 AI agents and platforms spanning multiple industries,” Srini Pallia, managing director of Wipro Ltd, said during the post-earnings call with analysts on October 16.
Domestic Master’s Degree
Industry number 5 Tech Mahindra is incorporating AI into its services and is also working on creating AI models for government use in line with the India AI Mission.
“We are partnering to develop a native, sovereign, large language model with 1 trillion parameters, a major technical milestone that places it among the largest AI models in development globally,” Tech Mahindra CEO Mohit Joshi said at the company’s post-earnings press conference on October 14.
TCS, Infosys, HCLTech, Wipro and Tech Mahindra finished last quarter with revenues of $7.47 billion, $5.08 billion, $3.64 billion, $2.6 billion and $1.59 billion, up 0.61%, 2.73%, 2.79%, 0.65% and 1.41%, respectively.
It remains to be seen whether the AI strategies of the top five will prove beneficial in the face of tariff disputes, macro challenges and visa uncertainties, all of which can reduce customer sentiment.
