TCS Q3 earnings: Growth, AI investments among 5 factors to watch out for

TCS

• TCS to kick off Q2 IT earnings season on January 12 with muted revenue growth
• AI revenue hits $1.5 billion, 5% of FY26 revenue, with major investments planned
• TCS cuts 2% jobs, shifts to AI talent and local hiring

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India’s largest IT services company Tata Consultancy Services (TCS) will kick start the December earnings season on January 12.

The October-December period was marked by some crucial strategic announcements by the IT services behemoth, including its largest ever acquisition of Coastal Cloud, and data centre investments, as the company charts its course to become the “world’s largest AI-led tech services company” in CEO K Krithvasan’s words.

The company is in the middle of an organisational restructuring with 2 percent job cuts, AI skilling and a shift in hiring strategy.

Here are five key themes to watch out for in Q3 earnings:

Muted revenue growth estimates

Brokerages have pegged TCS’ revenue growth between 0.5 percent and 1 percent quarter-on-quarter in constant currency. The growth was driven by ramping up of deals from the previous quarters, led by BFSI and communications verticals.

“Tepid growth is largely due to seasonal softness, lower billing days in international markets and also no major ramp up expected in BSNL deal,” a pre-earnings research note from Equirius Securities said.

EBIT margins is expected to decline by around 20 basis points sequentially on wage hike rollout and December being a seasonally weak quarter.

Steady deal wins, BFSI recovery

TCS announced around eight deals during the quarter, the highest among Tier-I IT players. Analysts at ICICI Securities have pegged quarterly deal total contract value (TCV) in the range $7 billion-$9 billion.

Some of the key deal wins include a five-year contract with SAP for four Centers of Excellence for Gen AI, customer experience, cloud; a digital transformation deal with British food retailer Morrisons; a five-year partnership with Tata Motors and expansion of its 15-year old partnership with UK insurance company Aviva among others.

Brokerages will watch out for management commentary around CY26 IT client budgets, sentiment on discretionary spending, AI/ Gen AI deal pipeline, demand trends in BFSI, retail, hi-tech, manufacturing and communications. Updates on deal signing and revenue conversion on the Rs 2,903 crore advance purchase order (APO) from BSNL will be tracked as well.

Updates on AI investments

AI will be the biggest talking point following the announcements at TCS Analyst Day 2025 on December 17. The IT services player clocked $1.5 billion in annual AI revenue and has worked on over 5,500 AI projects till date.

The $1.5 billion AI revenue accounts for nearly 5 percent of TCS’ estimated FY26 revenue, growing at 28.2 percent YoY CC annually, a ICICI Securities pre-earnings note said.

This is the first time the company has disclosed details on its AI revenue and deal pipeline. The December quarter saw TCS double down on its investments to build AI infrastructure.

At Q2 earnings conference in October, the company's management shared its plans to invest approximately $6.5 billion into building 1 GW of data centre capacity over the next five to seven years.

As of November, TCS said it will be investing $2 billion (Rs 18,000 crores) along with global alternate asset management firm TPG to fund its AI data centre business, HyperVault. The investment will happen in tranches over the next few years.

According to a pre-earnings research note from Motilal Oswal Financial Services, global LLM leaders such as OpenAI and Claude have started partnering with the system integrators (SIs), suggesting that the AI services layer is set to formalise and gain momentum over the next six months.

Analysts expect AI services demand to improve from mid-2026, as hardware-led AI capex intensity moderates and spending gradually shifts toward software, platforms and services.

“The Mar-Apr’26 budget reset period may serve as an initial indicator, with some AI programmes potentially transitioning from preparation to early deployment,” the note said.

While TCS’ AI investment plans is largely seen as promising in the long-run given its good cash flow availability, there are still sections of the Street that remains cautious of the "capex-heavy" turn in its business model.

Outlook on acquisitions

After nearly a decade of shying away from acquisitions and focusing on building newer capabilities in-house, TCS joined the M&A band wagon which rivals Accenture, Cognizant and Capgemini who are known for.

In less than a quarter, TCS acquired two Salesforce consulting firms, ListEngage MidCo for $72.8 million and Coastal Cloud in a $700-million all-cash buyout.

ICICI Securities' analysts estimate $6 million (+0.08 per cent QoQ USD) quarterly contribution from ListEngage.

Investors will look forward to updates on the capabilities TCS plans to add and acquisition budgets.

Hiring strategy changes, H-1B visa impact

In 2025, TCS made headlines following its plan to layoff around 2 percent of its global workforce to become more agile and future-ready amid rapid AI disruptions.

The move, which started in April 2025 and will continue till March, will impact employees across countries and domains in which it operates.

As of Q2, Chief HR Officer Sudeep Kunnumal said the company had released one percent, or 6,000 people, as part of its restructuring exercise.

TCS is also updating its fresher and lateral hiring strategy. While it had set a target of adding 42,000 freshers in FY26, COO Aarthi Subramanian shared the IT giant will now double down on AI-native fresher or trainee hiring.

In terms of lateral hiring, TCS will hire more in areas such as cyber security, enterprise solutions, cloud, advisory and consulting talent, that’s positioning them closer to customers.

“Today more than 50 percent of our experience hires are you know are coming with next gen skill sets,” Subramanian said during the Analyst Day in December.

Amid these changes, commentary on hiring will be in focus.

TCS is also focusing on expanding local hiring in the US and Latin America amid growing uncertainties around H-1B visa rules in North America. TCS has set up a new subsidiary in Costa Rica this quarter to expand workforce in the country.

Over the years, TCS has been reducing its dependency on H-1B visas, and has sent only 500 associates on new H-1Bs this year.