India’s IT Giants Just Reported. Here’s What AI Is Changing Behind the Scenes.

For the last two years, one question has dominated the Indian IT sector:

Will AI replace IT services companies?

The fear was simple. If AI can write code, automate testing, build applications, and improve developer productivity, won’t enterprises need fewer IT engineers?

After reading through the results and management commentary of TCS, Infosys, HCLTech, and Wipro, the answer seems much clearer. AI isn’t reducing the need for IT services companies. Instead, it’s changing the kind of work they do and, more importantly, how they get paid. Let’s dive in.

The Numbers:

Financially, it was another quarter of steady but not spectacular growth.

TCS reported revenue of ₹72,275 crore, up 2.2% QoQ and 13.9% YoY. In dollar terms, revenue remained largely flat sequentially, while EBIT margins slipped to 24% due to annual wage hikes. Despite the margin pressure, this was the company’s fourth consecutive quarter of growth.

Infosys reported 2.4% YoY constant currency revenue growth and 1% QoQ growth, while operating margins improved to 21.1%, showing better execution despite a weak demand environment.

HCLTech reported revenue of $3.65 billion, with 2.6% YoY constant currency growth. Margins also improved sequentially, reflecting better operational efficiency.

Wipro remained the weakest among the four. IT Services revenue grew just 0.9% YoY and declined 1.2% QoQ, although the company still delivered stable profitability.

Overall, the numbers tell us one thing: the industry is still dealing with slow enterprise spending. But the management commentary paints a much more interesting picture.

AI Is Creating A New Problem - And A New Opportunity:

One theme came up across all four companies. As enterprises move from experimenting with AI to deploying it at scale, AI costs are becoming a major concern.

Everyone expected AI to make software development cheaper. But companies are now realizing that as AI adoption increases, token consumption also rises sharply. Even if the cost per token falls over time, total AI spending can still increase because businesses are simply using AI much more. This is where IT services companies see their next growth opportunity.

Wipro said, “CFOs are now closely involved in AI decisions because token costs are rising rapidly. Clients are no longer asking only which AI model is the smartest; they’re asking which model delivers the best return on investment. Choosing between premium LLMs, open-source models, and optimizing AI costs has become a business decision, not just a technology one”.

TCS echoed the same view. Management believes enterprises won’t rely on a single AI model. Instead, they’ll use a combination of large language models, smaller language models, older models for simple tasks, and advanced models only where necessary.

Deciding which workload should run on which model is becoming a new challenge, and TCS believes system integrators will play a much bigger role in helping clients optimize those decisions while controlling AI costs.

HCLTech added another interesting perspective. Management said token costs only become meaningful once enterprises start deploying AI at scale. While individual token prices may decline over time, overall consumption will rise significantly, keeping total AI spending high.

The company also believes training enterprise-specific Small Language Models (SLMs) requires significant data engineering, integration, and model development, creating another wave of engineering services opportunities.

Taken together, all three companies are pointing toward the same trend. The next phase of AI won’t just be about building AI models; it will be about managing them efficiently.

The Billing Model Is Quietly Changing:

Another major trend that appeared across all four earnings calls was how IT companies expect to charge clients in the future. For decades, Indian IT companies primarily earned revenue through time-and-material contracts, where clients paid based on the number of engineers and hours worked. That model is slowly changing.

Today, clients increasingly want to pay for business outcomes instead of engineering effort.

Infosys said outcome-based pricing is becoming a much bigger part of client discussions. While it still contributes only a small portion of revenue today, enterprises are increasingly willing to adopt these models, especially for large transformation projects involving AI.

HCLTech said it is already in advanced discussions with clients around contracts that involve committed AI consumption and outcome-based commercial models from day one.

Wipro believes AI is expanding the market rather than shrinking it, but clients now expect measurable productivity improvements and stronger links between technology investments and business outcomes. As a result, consulting-led engagements and outcome-based contracts are becoming increasingly important.

TCS perhaps described this shift most clearly. Management said they are already seeing more output commitment-based contracts, where the company commits to delivering a defined business outcome within a fixed timeline instead of simply billing for engineering hours.

According to COO Aarthi Subramanian, this transition has already begun and is expected to accelerate as enterprises adopt AI more broadly.

This could become one of the biggest structural changes the industry has seen in years.

The Macro Environment Still Remains Challenging:

The near-term demand in the IT services sector remains weak.

TCS said geopolitical uncertainties and macroeconomic weakness continued through the quarter, with several clients choosing to defer projects rather than cancel them completely.

Infosys reduced the upper end of its FY27 revenue growth guidance from 3.5% to 3%, citing weaker volumes, lower pricing, one-off contract terminations, and continued macro uncertainty.

HCLTech maintained its FY27 guidance, reflecting confidence in execution despite an uncertain environment.

Wipro’s Q2 guidance also points to continued softness in the near term, although management expects spending in the BFSI segment to gradually improve.

Our Takeaway:

For a long time, investors believed AI would eventually reduce the need for IT services companies. The latest earnings suggest something very different.

Instead of being disrupted by AI, IT companies are adapting to it. AI-related deals are gradually picking up, and companies are building new capabilities around AI implementation, optimization, and outcome-based delivery.

The key question now is whether this momentum can sustain. As traditional application development and maintenance (ADM) deals mature and gradually slow down, can AI-led projects grow large enough to replace them? That will be the biggest trend to watch over the next few years, and it could define the next phase of growth for the Indian IT industry.