TCS shares rise nearly 2% as brokerages see IT firm on right path towards AI adoption

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Shares of Tata Consultancy Services gained nearly 2% to Rs 3,278 apiece as brokerages hailed country's top IT services exporter's aspiration to become world's largest artificial intelligence-led tech services firm at Analyst Day.

TCS said its AI services revenue stood at $1.5 billion on annualised basis. On December 18, Nifty IT was trading nearly 1% higher, thus rising for fourth out of past five sessions.

This was the first time the information technology services bellwether disclosed its AI earnings seperately. None of its large IT peers have as yet reported their AI revenue separately.

"85% of all the clients, greater than 20 million (in dollars), leverage TCS for their AI work and based on the success we've been able to get in the market from our customers, our QoQ (quarter-on-quarter) growth on AI alone has gone up by 16.3%," Krithivasan said, adding TCS has so far delivered more than 5,500 AI-related projects.

"...we spend about a billion dollars annually on learning and development, on targeted research and innovation, and on specialised infrastructure towards the new services," Chief Financial Officer Samir Seksaria said.

TCS’s AI agenda is built on five interconnected pillars: 1) driving internal transformation via tcsai, 2) reimagining service lines with an integrated ‘Human+AI’ delivery model, 3) shaping a future-ready talent architecture, 4) making AI tangible for clients by strengthening enterprise tech foundations and scaling AI across the industry value chain, and 5) orchestrating an AI ecosystem through deep partnerships with enterprise, domain, deep-tech, and AI-native players. This end-to-end model drives strong client stickiness and positions TCS as a long-term AI transformation partner.

Besides building an AI-first culture within the company and training its workforce in AI fluency, TCS said it is redefining services for the "human + AI" model.

"Every role in the company has to become AI first, AI-centric," said Aarthi Subramanian, executive director, president, and chief operating officer. "So we have a programme for AI which we have launched to all our sales, solution, advisory, and delivery teams and this has been done at scale... The important thing here is that AI is also introducing new roles."

Global brokerage Jefferies said company's openness to proactively drive AI adoption even if it leads to revenue cannibalisation and growing focus on acquisitions to build capabilities is step in right direction, It gave a "hold" rating and price target of Rs 3,100.

ICICI Securities said the company's AI engagements are gaining scale, growing 38.2% YoY in constant currency terms and next-generation services revenue growing at 6%-9%. The domestic brokerage gave "add" rating and price target of Rs 3,390.

Motilal Oswal Financial Services said it was encouraged by company's changed stance on M&As and sees evidence of AI services demand taking shape. It gave "buy" rating and price target of Rs 4,400, which implies up to 35% from current market price.

"We were encouraged by TCS’s changed stance on M&A, following its recent acquisitions (Listengage, Coastal), but were slightly disappointed when it reaffirmed its (slightly lofty) 26-28% EBIT margin ambition, which we believe could leave money on the table at this stage of the cycle. That said, we saw evidence of AI services demand taking shape, and believe both TCS and Indian IT services can pivot in time to be on the right side of the GenAI wave," the brokerage said.

"Despite elevated investments, it continues to aspire for 26-28% EBITM, backed by operating leverage, productivity improvement, and shift toward higher-value advisory-led engagements," said Emkay Global. It retained "add" rating on the stock and gave a target price of Rs 3,250, at 21x Sep-27E EPS.

"For FY26, management expects its international growth to exceed FY25’s 0.7% constant currency growth, driven by strong deal momentum and AI-led modernisation. We believe TCS’s revenue and EBIT to grow at a CAGR of 5% and 9% over FY25-27E on the back of continued deal wins despite a stable macro-environment, driven by mining of large clients across end-user industries and greater ability to bag larger deals. The company is currently at a 23x/21x P/E multiple for FY26E/FY27E. We recommend a BUY on the stock and value the company at 23x multiple to its FY27E earnings to arrive at a target price of Rs 3,565 per share, implying an upside of 11% from the CMP," said Axis Securities.