Infosys, TCS, Coforge other IT stocks rise up to 2% after Wall Street tech rally

IT stocks

• Indian IT stocks rose after Nvidia's AI chip deal with Meta
• Nifty IT index jumped over 1.5 percent in morning trade
• Analysts see the rise as a tactical bounce after recent selloff

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The shares of Indian IT companies gained in trade on February 19 after tech rally on Wall Street as Nvidia’s new multi-year deal with Meta Platforms eased some worried around AI-led disruption in the sector.

The sharp rally in the share prices pushed the Nifty IT index up more than 1.5 percent to 33,167.6 in the morning trading hours of Thursday. Coforge shares were up more than 2 percent, while heavyweights Infosys, Tata Consultancy Services (TCS) and HCL Technologies gained nearly 2 percent each.

Wipro and Tech Mahindra shares gained around 1 percent each, while LTI Mindtree and Oracle Financial Services Software (OFSS) shares were trading in the green with marginal gains. Bucking the trend, Persistent Systems shares fell more than 2 percent, and Mphasis shares were trading in the red with marginal losses.

What drove global tech rally?

Nividia, the world’s most valuable company, saw its share price rise 1.6 percent after it signed a signed a multiyear deal to sell millions of its current and future artificial intelligence chips to Facebook-parent Meta Platforms. Meta shares gained 0.6 percent.

Sandisk, Western Digital and Seagate Technology Holdings jumped between 1.7 percent and 4.4 percent each, fueled by massive AI-related demand for their storage technology. Amazon shares gained 1.8 percent, while Microsoft rose 0.7 percent.

This comes after a massive tech selloff after Anthropic’s launch of new AI tools, leading to worries about an AI-led disruption in the sector.

"At a certain point, weakness in tech was bound to bring in the marginal buyer. These are still high-growth names. They were expensive and they've gotten cheaper," Reuters quoted Ross Mayfield, an investment strategy analyst at Baird in Louisville, Kentucky, as saying. "There are still a lot of people who want to be exposed to tech for the next several years,” he added.

S&P Software & Services gained 1.26 percent, while the broader S&P 500 index gained 0.56 percent. The tech-heavy Nasdaq gained 0.78 percent.

TCS-OpenAI announce strategic partnership:

Additionally, TCS announced  a multi-dimensional strategic partnership with ChatGPT-maker OpenAI. "This partnership spans multiple high-impact areas, including powering AI-led innovation across Tata Group companies, joint efforts to drive AI transformation across industries globally, and setting up AI infrastructure," it said.

As part of the deal, several thousand Tata Group employees will get access to Enterprise ChatGPT. TCS additionally will leverage OpenAI’s Codex to boost software engineering outcomes. "TCS and OpenAI will jointly enable Indian and global enterprises to transform with AI-powered solutions specific to their organizational context. Through this collaboration, TCS will help its customers accelerate AI-led transformation by deploying, integrating, and scaling OpenAI’s advanced AI platforms worldwide," the companies said in a statement.

Additionally, TCS’ HyperVault unit and OpenAI agreed to a multi-year partnership to develop AI infrastructure in India. In the initial phase, TCS will develop AI infrastructure with 100MW capacity, with an option to scale to 1 GW. "This infrastructure will power next-generation AI workloads and position India as a global AI hub," the firms said.

Value-buying:

Today’s rise in Indian IT stocks may have also been driven by value-buying with analysts terming the rise as a tactical bounce after the sharp selloff. These stocks have seen significant decline recently. The sharp decline in IT stocks began earlier this month amid concerns that artificial intelligence can intensify competition after Anthropic's launch of a legal AI tool for its Claude AI chatbot. Investors remained concerned that AI was creating more competition for software makers. IT index had lost 8.2 percent last week, its worst performance in 11 months.

Nomura said that the valuations of these stocks are in the ‘value’ zone, after the strong correction. It noted that the earlier fall was driven by key concerns around AI-led ADM disruption, SaaS irrelevance and margin compression.

The international brokerage however sees these AI-led disruption fears as oversimplifying IT services role.

In an earlier note titled 'India IT Services: Looking through the AI fog', JPMorgan's Asian Pacific Equity Research team argued that artificial intelligence will create new areas of work, instead of simply shrinking the opportunities for IT vendors.

"IT firms remain the plumbers of the technology world…However, it's overly simplistic to assume that AI can automatically generate enterprise grade software and replace the value IT Services firms create across the cycle," it added.n

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