AI-led meltdown raises IT investors’ struggle to crack revenue revival code

In addition, US-based AI company Anthropic elevated its Claude Cowork platform from an experimental enterprise assistant. It launched a slew of new plugins that enhance Claude’s abilities beyond generic tasks to domain-specific expertise. Google also launched the Gemini 3 Deep Think version with stronger reasoning, coding, and math skills.

So, the panic stems from a swift shift in narrative—from potential AI-led pricing and margin pressures to full-fledged disruption of traditional, manpower-driven business models that rely on billable hours. Even before Palantir’s comments, some adverse impact on AI-driven coding hours was expected, but ERP, seen as insulated from AI gains, is now threatened.

The jury is still out on whether AI-related developments will translate into meaningful revisions to the Street’s terminal growth rate assumptions, or whether they will just temporarily lower growth rates and margins.

For now, the sentiment has soured.

Terminal growth rate is the assumed steady growth rate of a business after the high-growth period ends. In a report dated 13 February, a Motilal Oswal Financial Services analysis showed that the market is currently pricing a free cash flow compound annual growth rate (CAGR) of around 6.5%, which is among the lowest in the past two decades.

Strategy gap

Moreover, with a stronger-than-expected US employment data, widely held expectations are that the US Federal Reserve may not cut interest rates soon. This could mean tighter technology budgets by clients. These incremental negatives delay hopes of revenue growth revival to beyond FY27.

Jefferies India estimates that application services account for 40-70% of overall revenues for Indian IT firms and face growth pressures, as Anthropic’s Cowork plug‑ins and Palantir’s claims of faster SAP migrations highlight how AI could erode application service revenues. ERP implementation, custom application maintenance, and software support are among the application services provided by IT firms. “The consensus US dollar revenue growth expectations of 6-7% in FY27/ FY28 do not adequately factor in the threat from AI and carry the risk of downward revisions,” Jefferies cautioned. This should further push the price-to-earnings (PE) multiples lower. The PE multiple of the Nifty IT index has moderated, with the sector index trading at 18x for FY27, according to Bloomberg data.

The December quarter (Q3FY26) results of IT companies were soft, reflecting seasonal weakness amid furloughs. Large deal wins prompted Infosys and HCL Technologies to raise their FY26 guidance, albeit the demand outlook was cautious. Tata Consultancy Services (TCS) and HCL have started reporting AI-led revenues. TCS said clients have moved from the experimental phase to scaled AI implementations.

But the road is long. This is a strategic wake-up call for Indian IT companies, as per Nirmal Bang Institutional Equities. It feels that, while tier I management commentary has leaned heavily on AI-led deal momentum, the aggregate total contract value of deal wins—a forward indicator — tells a more restrained story. Thus, it indicated that AI rhetoric has not yet translated into larger deals.