Gen AI presents a bright spot, but not yet a meaningful revenue churner for India's Big Tech

Even as the excitement around generative artificial intelligence (AI) technology has only increased with time, it has yet to convert into substantial and high-value deal orders for information technology services (ITeS) companies. This sentiment was reflected across major services companies like Infosys, Tata Consultancy Services (TCS), HCL Technologies, Wipro, and Tech Mahindra, which announced their second quarter results for FY24 this month.

“From a client perspective, the goal is not to adopt the latest technology, but to assess how it is going to impact the overall business and the return on investment,” said Biswajit Maity, senior principal analyst, Gartner. “The adoption rate is overall it is very low, but gradually it will increase over time. Further, our analysis shows that by 2025, 80% of enterprise applications such as productivity software, instant messaging software, or business intelligence applications will have generative AI incorporated into them.”

TCS, the largest IT services company in the country by market capex announced its Q2FY24 results on October 11, where it reported a revenue of ₹59,692 crore and a consolidated net profit of ₹11,342 crore. A spokesperson for the Indian multinational said during the media interaction that the kind of projects TCS is winning has ‘an element of cloud, automation, generative AI, and machine learning’. However, standalone generative AI deal sizes are small.

“In the beginning, it was mainly toward knowledge discovery but as clients understand what more is possible, the complexity of the generative AI projects is increasing,” said TCS chief executive officer (CEO) K. Krithivasan said in response to a media question. The company has also completed initial generative AI training for 100,000 of its employees, he added.

Like TCS, Infosys, which recorded ₹6,212 crore in consolidated net profits, also reported that it is doing ‘tremendous amount of work in generative AI’, however, the project sizes are smaller with corresponding revenue translation. “We are not at a stage where they are becoming big part of the revenue but we feel very good with the capability that we have built,” said Infosys CEO Salil Parekh, while speaking to reporters on the sidelines of the quarterly results announcement. To be sure, on May 23, the Bengaluru-headquartered company launched an AI-first suite of services and solutions called Topaz, using generative AI.

Notably, Infosys and TCS-parent Tata Group announced deals with chipmaker Nvidia in September. It is significant because, Nvidia, the producer of A100 and H100 graphics processing units (GPUs) has quickly emerged as the leading chipmaker amid growing generative AI popularity.

Further, HCL Technologies is working on over 100 opportunities in generative AI but most of them are in the proof of concept (POC) stages, said company CEO and managing director C Vijayakumar, while answering media query. “As expected with any new tech it starts with POC and then scales up over a period of time. But we continue to see tremendous traction on this front in the market.” 

Similarly, Wipro’s Thierry Delaporte said, “As the technology evolves and the output becomes more accurate, we expect demand for generative AI services and expertise to increase greatly over the next 6-12 months.” The Wipro CEO also said that 180,000 employees have been trained in AI, since the launch of Wipro ai360 services in July.

Notably, HCL Technologies and Wipro reported consolidated net profit at ₹3,832 crore and  ₹2,667.3 crore, respectively. 

Lastly, Tech Mahindra, which reported a drop in revenue during the results announcement on October 25, said that generative AI is ‘definitely’ a part of all recent deal wins. Tech Mahindra’s Generative AI Studio has 60 pre-built use cases and over 10,000 associates have been trained on generative AI-based pair programming to boost their productivity. 

“In general, every new technology takes longer than we think to adopt. So it's not going to happen in a quarter,” said Kashyap Kompella, CEO of industry analyst firm RPA2AI Research. “My estimate says that in the next three years, about 5-10% of revenue growth can come for technology services companies in each of the verticals from generative AI. In 2024, however, in an environment of macroeconomic uncertainty, generative AI will be an area of growth and a bright spot for technology services companies.”

Akshara Bassi, senior research analyst, Counterpoint Research, called it an environment of ‘cautious optimism’. “Right now most of these companies are taking the most obvious route of integrating the technology within their own suite of services to give an add-on experience. This will evolve as generative AI becomes more mature.”