IT Services Firms Adjust Strategies Amid AI-Driven Revenue Declines
Why IT services firms are loosening their purse strings amid AI shift
Business Standard
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In Q4 FY26, major Information Technology (IT) services companies reported declines in revenue, attributed to 'AI-led deflation' affecting contract values. HCLTech anticipates a 2-3% annual decrease in traditional service costs, while TCS and Infosys also reported revenue contractions, prompting cautious growth forecasts.
- 01HCLTech predicts 2-3% annual deflation in traditional IT services due to AI.
- 02TCS experienced its first revenue decline since 2006, reporting $30 billion.
- 03Infosys' revenue fell by 1.2%, leading to a conservative growth forecast.
- 04The industry is witnessing shrinking deal sizes and revenue growth compression.
- 05AI is significantly impacting contract values and service costs.
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In the recent Q4 FY26 results, Information Technology (IT) services firms are facing challenges due to what is termed 'AI-led deflation.' HCLTech's leadership has projected an annual deflation of 2-3% in traditional services as AI technologies reshape the market. Tata Consultancy Services (TCS) reported a 0.5% year-on-year revenue decline, marking its first contraction since its public listing in 2006, with total revenues at $30 billion in constant currency. Similarly, Infosys noted a sequential revenue drop of 1.2%, resulting in a revised FY27 growth forecast of just 1.5-3.5%. This trend highlights a broader industry issue of shrinking deal sizes and compressing revenue growth, as companies adapt to the evolving landscape influenced by AI advancements.
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The revenue declines across major IT firms may lead to reduced hiring and investment in new projects, affecting job opportunities in the sector.
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