The next phase of the artificial intelligence investment cycle could work in favour of Indian IT services companies, with global technology spending expected to move towards enterprise-level AI deployment after a period focused largely on building infrastructure, according to an Anand Rathi sector report.The brokerage expects this change in spending priorities to bring back technology work that has remained delayed in recent years. As generative AI moves from experimentation to broader adoption by enterprises, Indian IT companies could start seeing these projects flow through from FY27.The growth opportunity could extend into FY28 and FY29, potentially giving the IT services sector a multi-year growth cycle, Anand Rathi said.“Our core thesis is that the AI cycle is pivoting from ‘building capacity’ to ‘proving payback’,” the brokerage said. It added that the next stage of AI adoption is likely to be driven more by services.The shift comes after nearly three years during which the IT sector dealt with subdued discretionary technology spending and longer deal cycles. Companies have also faced concerns that productivity improvements through AI could reduce demand for conventional IT services.Anand Rathi, however, said broader AI adoption would involve spending across several technology functions. Enterprises would need services for data preparation, system integration and governance, while legacy systems would require upgrades. Cybersecurity and the management of AI agents would also form part of the spending.“AI is expanding the TAM rather than compressing it,” the report said.It added that lower costs of technology modernisation could bring back projects that companies had previously put on hold. This could create opportunities for IT services companies in AI deployment, data optimisation and AI operations.The focus on returns is also increasing among global technology companies that have made large investments in AI infrastructure. Anand Rathi said capital expenditure by the top five hyperscalers is expected to reach about USD 825 billion, while boards and chief financial officers are increasingly demanding clearer returns from such investments.Indian IT companies are already seeing revenue from AI-related services. Tata Consultancy Services (TCS) has reported annualised AI revenue of $2.6 billion, while AI services made up 8.2 per cent of Infosys’ revenue, according to the report.HCLTech and LTIMindtree have also reported growing revenue streams from AI services.Despite the expected recovery, the brokerage flagged several near-term risks for the sector. Pricing pressure arising from AI, weak global economic conditions and automation affecting lower-end IT services could weigh on companies before they are able to move towards higher-value AI work.
