TCS announces biggest AI pivot amid muted Q2 outing

Tata Consultancy Services (TCS) Ltd reported its weakest consecutive second-quarter growth in six years, marking its biggest milestone since going public in August 2004, even as India’s largest software services provider pledged to build AI data centers with an investment of at least $6 billion in about six years.

The company reported revenue of $7.47 billion in the second quarter, up 0.61% sequentially and down 2.66% year-over-year; This was the first annual revenue decline in the second quarter. On a quarterly basis, more than three-fifths of its incremental revenue came from banks and financial institutions, which account for one-third of TCS’ business.

TCS’s performance beat analysts’ expectations for revenue of $7.35 billion in the September quarter. Still, the Mumbai-based software services company lost $288 million in the first half of the fiscal year, down 1.9% from the previous year.

But in a bid to find better growth avenues, the company announced its intention to intensify its AI efforts with plans to set up a 1GW AI data center in India through a new business unit.

“We expect to get to 1 GW in a five-to-seven-year period, and our calculation is roughly that every 150 MW will be about a billion dollars,” CEO K. Krithivasan said on a post-earnings call with analysts. “To give a little more insight, our current goal is to provide all passive components. No matter who (the customer) is busy, it will bring the compute storage,” he said.

He added that the company plans to sell these data services to “pure-play AI providers, deep tech companies and hyperscalers, and government needs in India and Indian businesses at large.”

One billion dollars for each 150 MW means an investment of about six and a half to seven years, for a total value of about $7 billion. To put this in perspective, the money TCS will be pouring into data centers is about the size of Tech Mahindra Ltd, the country’s fifth-largest IT services company.

“So it doesn’t mean we will put all the money in year one. We are also clarifying that it will be a combination of equity and debt and we will also bring in cash partners for equity,” Krithivasan said.

TCS also announced the $72.3 million acquisition of US-based ListEngage; This is the Mumbai-based company’s biggest acquisition in more than 12 years, following its acquisition of French IT services company Alti for 75 million euros in 2013. ListEngage is a marketing technology company.

“We see FY26 international revenue growth to be better than last fiscal. IT services spending is stable and no significant change is expected in the near term,” Krithivasan said during the call.

Assembly difficulties

Krithivasan, under whose stewardship the company has reported a sequential revenue decline in four of the last nine quarters, faces the difficult task of steering the company through internal and external shakeups.

On July 27, the company announced it would lay off more than 12,000 mid- and lower-level employees who could not be retrained and redeployed on new technologies.

“We have released a percentage of our workforce, mostly mid- to senior-level, where there is a skill and talent mismatch. We are providing affected employees with benefits for their transition, mentoring and outplacement support, as well as severance pay on terms higher than industry standards,” human resources manager Sudeep Kunnumal said during the interview.

The company ended September 2025 with 593,314 employees, 19,755 fewer than the previous quarter. To put this in perspective, the number of people leaving TCS in the last three months alone is more than the 15,784 people added by the Mumbai-based company in the last three years.

In August, the company announced a new “Artificial Intelligence and Service Transformation” unit, headed by Amit Kapur. This is the third AI unit in as many years, highlighting uncertainty over TCS’s policy on AI automating jobs and leading to lower billing. But management was optimistic on the earnings call with analysts.

“We expect every project we do to be driven by AI,” Krithivasan said, adding, “The overall scope of involvement or the size of involvement will definitely increase, but there will be productivity benefits that clients will get on the individual project, and we will also get some productivity benefits in doing this project because we will leverage AI.”

Of course, TCS does not disclose revenue from Gen AI or even order reservations from the new technology. That’s in contrast to larger rival Accenture, which posted $2.7 billion in revenue from new technology and $5.9 billion in order bookings.

TCS’s AI challenge comes as it faces challenges in the US, its largest market.

On September 19, US President Donald Trump increased the H-1B visa application fee to $100,000 starting next year; These permits allow foreigners to work in specialized roles in the United States.

Less than a week later, judiciary committee members Charles E. Grassley and Richard J. Durbin wrote a letter to CEO Krithivasan about the company’s hiring practices, claiming that TCS was under investigation for firing older American workers in favor of newly hired South Asian H-1B workers.

Restrictions on IT services companies began on September 5, when Ohio Senator Bernie Moreno proposed the Stopping the International Relocation of Employees (HIRE) Act to impose a tax on companies that outsource IT work.

The company’s management said it would adapt to changes in immigration policy.

“We have significantly localized our workforce in the US on H-1B. Approximately 500 of our employees have traveled to the US on H-1B. We believe our business model can quickly adapt to any change in immigration policy,” said Kunnumal.

TCS received 5,505 H-1B visas this fiscal year, making it the second-largest beneficiary of such permits after Amazon, which received twice as many, according to U.S. government data.

Profit falls

The company completed the July-September months with an operating margin of 25.2%, an increase of 70 basis points, respectively. However, this does not include the one-time restructuring cost of $129 million. Base point is one hundredth of a percentage point

Another cause for concern was its net profit. The company finished last quarter with a net profit of $1.46 billion, down 1.94% sequentially.

It also announced a dividend distribution. ₹11 per share.

Management, which did not provide a quarterly or full-year forecast, remained cautious, citing non-essential demand as uncertain.

“Ongoing uncertainties in the broader economic environment remain a significant challenge. Companies are maintaining tight control over their discretionary budgets in response to economic and demand fluctuations. Customers are consolidating suppliers to achieve transformation goals effectively and efficiently,” Krithivasan said.

“The company has taken the small step of acquiring Salesforce partner ListEngage for the first time since Alti in 2013 and has also announced its intention to build a 1GW AI data center in India, which is interesting,” said Manik Taneja, managing director of IT services at Axis Capital.

Shares of TCS ended up 1.16 percent ₹It was at 3,061.95, compared with a 0.49% rise in BSE Sensex on Thursday, ahead of results announced after market hours.

TCS’s uncertain outlook is expected to have a cascading impact on smaller companies reporting earnings next week. Infosys Ltd and Wipro Ltd will announce their second quarter results on October 16, while HCL Technologies Ltd and Tech Mahindra Ltd will report their earnings on October 13 and October 14, respectively.