TCS announces biggest AI pivot amid muted Q2 outing

Tata Consultancy Services (TCS) Ltd reported its weakest sequential second-quarter growth in six years even as India’s largest software services provider promised to set up AI data centres with at least $6 billion of investments in around six years, marking the biggest pivot since going public in August 2004.

The company reported $7.47 billion in revenue in the second quarter, up 0.61% sequentially but down 2.66% on a yearly basis–the first annual revenue decline in the second quarter. On a quarterly basis, more than three-fifths of its incremental revenue came from banks and financial institutions, which make up a third of TCS's business.

TCS’s performance exceeded analysts’ expectations of $7.35 billion in revenue in the September quarter. Still, the Mumbai-based software services company has lost $288 million in the first half of the fiscal year, down 1.9% from a year earlier.

However, in a bid to find better growth avenues, the company announced its intention to intensify its AI push, with plans to set up a 1 GW AI data centre in India through a new business unit.

“We expect to achieve 1 GW over a period of five to seven years, and our calculation roughly is about every 150 MW would be about a billion dollars,” chief executive K. Krithivasan said in a post-earnings call with analysts. “Just to provide some more information, our current objective is to provide all passive components. Whomsoever (the client) is occupying, they will bring in their computing storage,” he said.

He added that the company intends to sell these data services to the “pure play AI providers, the deep tech companies and the hyperscalers, and to a great extent, the government needs in India and Indian enterprises."

A billion dollars for every 150 MW translates to about six-and-a-half to seven years of investment worth about $7 billion in total. To put that in perspective, the money TCS would plough into the data centres is about the size of Tech Mahindra Ltd, the country’s fifth-largest IT services company.

“So, it's not that we are going to put all the money in year one. And we also clarify that this would be a combination of equity and debt, and we’ll also bring in cash partners for the equity,” said Krithivasan.

TCS also announced a $72.3 million buyout of US-based ListEngage, marking the Mumbai-based company's largest acquisition in more than 12 years after it buying French IT services firm Alti for 75 million euros in 2013. ListEngage is a marketing tech firm.

“We see FY26 international revenue growth to be better than last fiscal year. IT services spend is steady, with no significant change expected in near term,” Krithivasan said during the call.

Mounting challenges

Krithivasan, under whose stewardship the company reported a sequential revenue decline in four of the last nine quarters, faces an uphill task to steer the company through internal and external shakeups.

On 27 July, the company announced it would lay off more than 12,000 middle- and junior-level employees who could not be retrained on new technologies and redeployed.

“We have released one percentage of our workforce, mainly mid and senior level with skill and capability mismatch. We are providing the impacted employees with benefits, counselling, and out-placement support for their transition, as well as severance at terms higher than industry standards,” said Sudeep Kunnumal, chief human resources officer said during the call.

The company ended September 2025 with 593,314 employees, 19,755 fewer than the preceding quarter. To put this in perspective, the number of people who have left TCS in the last three months alone is more than 15,784 people added by the Mumbai-based company in the last three years.

In August, the company announced a new “AI and Services Transformation” unit headed by Amit Kapur. This is its third AI unit in as many years, highlighting uncertainty around TCS’s policy on AI, which is automating jobs and leading to fewer billings. However, the management was sanguine in the earnings call with analysts.

“We expect every project we do will be AI-led,” said Krithivasan, adding that “overall scope of engagement, or size of engagement, would definitely increase, but there will be productivity benefits that the clients would get in the individual project, and we also will get some productivity benefits in doing this project, because we'll be leveraging AI.”

To be sure, TCS does not disclose revenue from Gen AI or even order bookings from the new technology. This is in contrast to larger peer Accenture, which disclosed $2.7 billion in revenue from the new technology and $5.9 billion in order bookings.

TCS’s AI challenge comes when it faces challenges in the US, its largest market.

On 19 September, US President Donald Trump increased the H-1B visa application fee to $100,000 from next year—these permits allow foreigners to work in the US on speciality roles.

Less than a week later, judiciary committee members Charles E. Grassley and Richard J. Durbin wrote to CEO Krithivasan over the company’s hiring practices, alleging that TCS is under investigation for firing older American workers in favour of newly hired South Asian H-1B employees.

The clampdown on IT services companies started on 5 September, when Ohio Senator Bernie Moreno proposed the Halting International Relocation of Employees (HIRE) Act to impose taxes on companies that outsource IT work.

The company’s management said it would adapt to changes in immigration policy.

“On H-1B, we have significantly localised our workforce in the US. Approximately just about 500 associates have travelled to the US on H-1B. We believe our business model will be able to adapt quickly to any changes in immigration policy,” said Kunnumal.

According to US government data, TCS received 5,505 H-1B visas this fiscal, making it the second-largest beneficiary of such permits after Amazon, which received twice as many.

Profit drops

The company ended July-September with an operating margin of 25.2%, up 70 basis points sequentially. However, this does not include a one-time restructuring cost of $129 million. A basis point is a hundredth of a percentage point

Another cause of concern was its net profit. The company ended last quarter with $1.46 billion in net profit, down 1.94% sequentially.

It also announced a dividend of ₹11 per share.

The management, which does not provide quarterly or full-year guidance, is cautious, citing that non-essential demand was uncertain.

“Lingering uncertainties in the broader economic environment continue to remain a key challenge. Companies are keeping a tight control over their discretionary budgets in response to economic and demand volatility. Clients are consolidating vendors to achieve transformation objectives effectively and efficiently,” said Krithivasan.

Manik Taneja, executive director of IT services at Axis Capital, said, “The company has made a small tug in the acquisition of a Salesforce partner, ListEngage, first since Alti in 2013, as well has announced the intent to set up a 1GW AI data centre in India, which is interesting.”

TCS’s shares ended 1.16% up at ₹3,061.95 compared with a 0.49% rise in the BSE Sensex on Thursday, ahead of its results that were released after market hours.

TCS’s uncertain outlook is expected to have a cascading effect on smaller peers, which announce their earnings next week. Infosys Ltd and Wipro Ltd will report their second-quarter results on 16 October, while HCL Technologies Ltd and Tech Mahindra Ltd announce their earnings on 13 October and 14 October, respectively.