Deals, data centres, AI: Can TCS sell its future-ready story to investors?
TCS is shedding its staid image with acquisitions, AI, and data centres. The question is whether these moves can revive growth and convince a cautious Street.
BENGALURU : Tata Consultancy Services Ltd (TCS) is attempting to shake off its reputation as a staid IT outsourcer.
In the last three months alone, the company has announced its largest acquisition since going public, committed billions of dollars to data centre infrastructure, and moved closer to securing a rare billion-dollar contract.
On 10 December, TCS agreed to acquire tech consulting firm Coastal Cloud for $700 million in cash—its biggest deal since listing in 2004—a move expected to bolster its Salesforce software capabilities.
This acquisition came less than three months after TCS announced its biggest pivot, which is a $6.5 billion investment over six years to build 1GW of data centre capacity. This move underscores the Mumbai-based firm’s ambitions beyond its traditional IT services playbook.
That was followed by another surprise. A week after the Coastal Cloud announcement, Mint reported that TCS was in the process of securing a $1 billion, 10-year contract from Telefónica UK, ending a nearly two-year drought in billion-dollar deals.
To say that TCS now resembles a flashy startup would not be far off. The burst of announcements follows a volatile quarter marked by layoffs, the induction of a new chief operating officer, and the launch of yet another AI business unit—the third in as many months.
Internal reset
Behind the scenes, TCS is undergoing a structural leadership overhaul, with a new rung of executives stepping into the spotlight. Tata Sons chairman Natarajan Chandrasekaran, newly appointed COO Aarthi Subramanian, and chief executive K. Krithivasan are promoting middle-level executives to leadership roles amid a steady exit of the old guard.
Even routine operations are being re-examined under Subramanian’s watch. Leaders are being regularly questioned on gaps within their service lines and handed clear timelines to address them. Senior executives are also being nudged to spend at least 90 minutes a day upgrading their skills in emerging technologies.
These changes come after a year of growing scepticism among analysts. The lack of mega deals and client losses to rivals prompted at least three brokerages—HSBC, Motilal Oswal Financial Services, and Kotak Institutional Equities—to warn of a potential full-year revenue decline, a first in more than two decades for the IT bellwether.
The recent moves, however, appear to have softened analyst sentiment. At least four brokerages—ICICI Securities, Kotak Institutional Equities, Deven Choksey Research, and Elara Capital—have named TCS among their top picks for the third quarter, citing improving deal momentum and internal restructuring.
Markets unconvinced
Investors remain wary. Over the past six months, TCS has been the worst-performing stock among India’s four largest IT services firms, declining 4.6%. By comparison, HCL Technologies fell 3.7%, while Infosys and Wipro gained 0.6% and 1.2%, respectively.
Even in the previous quarter, TCS’s stock lagged peers, underscoring persistent investor unease. At its analyst day on 17 December, the company attempted to reassure shareholders by committing to stable payouts and, for the first time, disclosing AI revenue metrics alongside growth figures for its cybersecurity, digital marketing, and cloud businesses.
Against this backdrop, Mint examines five reasons behind investor caution as TCS prepares to announce its third-quarter results on Monday.
- Uncertain macro outlook
Geopolitical tensions in Venezuela and Iran could delay a revival in discretionary spending, a key revenue driver for Indian IT outsourcers. Analysts have also flagged a slower-than-expected demand recovery for India’s $283-billion IT sector, creating a potential double whammy for TCS.
While the company does not provide formal guidance, it has previously said international revenues—more than three-fourths of its business—should improve year-on-year despite muted demand. Any change in tone will be closely watched.
- Growth constraints
Following the completion of the $1.83-billion BSNL 4G deployment in 2025, TCS has struggled to sustain growth. Its data centre push is unlikely to generate meaningful revenue in the near term, while the $700-million Coastal Cloud acquisition—expected to close by end-January—may offer only a partial lift.
For now, the primary growth triggers remain the $1-billion Telefónica deal and a recovery in overseas demand.
“We build in 0.8% CC/0.4% USD QoQ revenue growth led by BFSI and communication verticals on ramp-up of deals won in previous quarter," said ICICI Securities analysts Ruchi Mukhija, Aditi Patil, and Seema Patil in a 24 December note.
Fewer working days in the quarter could complicate execution, making management commentary critical.
- Gen AI uncertainty
During its analyst day, TCS announced $1.5 billion in annualized revenue from AI, as of September 2025. The management stated that its AI business is growing faster than the company. However, the jury is still out on whether automation tools might fetch incrementally more demand, as the technology has still not seen widespread adoption and is currently eating into billings by automating human tasks.
Julie Sweet, chief executive of Accenture Plc, last month stated that enterprise adoption of advanced AI was still at its nascent stage, but expects demand to pick up. Analysts voiced a similar opinion, adding that AI would contribute to growth from the next fiscal.
“Unlike the cloud cycle, which saw a sharp postpandemic inflection in growth, the AI cycle is expected to be more prolonged and measured. Growth recovery is anticipated from FY27E onwards, with AI-led services shaping the next long-term growth phase for the Indian IT services sector," said HDFC Securities analysts Amit Chandra, Vinesh Vala, and Maitreyee Vaishampayan, in a note dated 8 December.
- Margin pressure
The data centre strategy involves heavy capital expenditure on land, equipment, and power, potentially pressuring margins. Wage hikes, furloughs, and separation costs linked to layoffs could further weigh on profitability, despite tailwinds from a weaker rupee.
TCS currently leads peers with a 24% operating margin and targets 26–28%. Whether it can protect margins amid rising costs will be a key focus.
- Execution doubts
Over the past year, concerns around execution and strategic clarity have intensified. The company lost key accounts to rivals, including DXC Technologies, Wipro, and LTIMindtree, due to delivery issues.
TCS’s rapid-fire strategic shifts—from data centres and AI restructuring to leadership churn and mega deals—raise questions about coherence. Hiring plans in an increasingly automated environment will also come under scrutiny when management takes questions on Monday.
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