Is the worst of AI deflation over? Depends on which IT boss you ask
Nearly four years after ChatGPT ignited the generative artificial intelligence boom, India’s top IT leaders remain sharply divided on when—or if—AI-driven revenue deflation will stop eating into their core business."
During their second-quarter earnings announcements, chief executives at four of the country’s largest IT services exporters offered conflicting assessments on the trajectory and persistence of AI-led revenue cannibalization.
The lack of consensus highlights a broader structural challenge facing Indian tech services firms. As Fortune 500 clients demand higher productivity through automation, legacy coding, software development, and maintenance contracts are shrinking. This persistent uncertainty—coupled with a lag in replacing eroded legacy revenue with new AI-native business lines—has weighed heavily on investor sentiment, causing shares across the sector to underperform broader market benchmarks. The divergent commentary reflects a sector still struggling to price and deliver automation at scale.
“As model and agentic capabilities continue to improve, we think the efficiency hurdle is likely to rise, requiring an increasing amount of new scope, share gains, and new AI-related work to offset pressure on the legacy base,” Keith Bachman, an analyst at BMO Capital Markets, wrote in a 14 October note.
Among the top players, HCL Technologies Ltd stood out as the sole voice warning that revenue deflation remains an active headwind.
“Now this deflationary impact, I think there is no one way to define how much deflation is already there and how much is yet to come. I would say we are in the early phases of deflation,” C Vijayakumar, chief executive of HCLTech, told reporters during the company's post-earnings press conference on 12 October. Vijayakumar was among the first Indian IT executives to flag the deflationary risk of AI. HCLTech reported $219 million in advanced AI revenue for the quarter, up 28% sequentially.
TCS, Wipro
In contrast, Tata Consultancy Services Ltd (TCS) and Wipro Ltd signaled that the worst of the revenue erosion may already be over.
Speaking to media after TCS’s earnings call on 8 October, CEO K Krithivasan indicated that nearly half of the deflationary impact has already played out, though he refrained from offering a firm timeline for when it would subside. “On one hand, there is a deflation because of the productivity benefit. But also, these industries use AI for modernization, and it also creates vendor consolidation opportunities,” Krithivasan said on the analyst call.
TCS reported an annualized AI revenue run rate of $3.1 billion, accounting for roughly a tenth of its overall business.
Wipro management similarly suggested an inflection point is near. “Typically, our contracts are about 2 to 2.5 years in terms of the average tenor,” said Aparna Iyer, chief financial officer of Wipro, during the company’s post-earnings call on 15 October. “And we've been in this cycle for at least the last 2 years. So in some sense, a lot of the contracts that we've had have been refreshed and renewed, we should be at that inflection curve in a few quarters.”
Meanwhile, Tech Mahindra Ltd dismissed the concept entirely. “I think this AI deflation is way overdone. The reality is that clients are expecting productivity from AI, but this is maybe slightly different in terms of magnitude. But this is no different from the productivity that clients were earlier expecting from consolidation, that they were expecting from agile, that they were expecting it from sort of simplification, and then from automation, and now from AI,” said Mohit Joshi, CEO of Tech Mahindra, during the company’s post-earnings press conference.
Neither Wipro nor Tech Mahindra discloses specific revenue metrics for AI-led services.
Modest topline growth
The divergence comes amid modest sequential topline performance. For the second quarter, TCS reported revenue of $7.64 billion (up 0.2% sequentially), HCLTech posted $3.72 billion (up 2%), Wipro generated $2.61 billion (down 0.1%), and Tech Mahindra delivered $1.69 billion (up 2%).
The debate was a central theme across earnings calls, with management of each of the four companies receiving queries on AI-led deflation from at least five brokerages regarding the timeline of deflation ebbing.
The uncertainty extends beyond Indian shores. On 1 October, Accenture Plc CEO Julie Sweet noted on an analyst call that while AI-driven deflation remains persistent, it has at least become predictable.
Bank of Baroda Capital Markets analysts Girish Pai and Lopa Notaria shared a similar outlook in a 9 October report: “We believe that AI/Gen AI will lead to compression of revenue for the industry in the next 12-24 months, as companies self-cannibalize to hold on to their existing clients.”