Growing, but not adding up: The AI revenue paradox for TCS, Accenture
Generative AI is the fastest-growing segment at firms like TCS and Accenture, but experts warn it may be replacing legacy IT revenue rather than adding new business.
BENGALURU : Artificial intelligence has emerged as the fastest-growing segment for large IT services companies, but with a twist. Experts and industry leaders both say that the red-hot technology is not materially expanding revenues, instead improving efficiency while cannibalising current revenue visibility.
For Accenture Plc, the world’s biggest IT services company, advanced AI revenue more than doubled year-on-year (y-o-y) to $1.1 billion, against a 5.95% y-o-y rise in quarterly revenue of $18.74 billion in the September-November quarter. Further, AI bookings accounted for 11% of the $20.8 billion in new bookings in the same quarter, more than four times their share two years ago.
Alongside, Tata Consultancy Services (TCS), India’s largest company in the industry, reported a 38% y-o-y rise in revenue from AI-led services in constant currency terms—to $1.5 billion annualized as of September—compared to 2-9% growth ($9.5 billion revenue) for other new-age services such as cybersecurity, IoT, enterprise solutions, cloud, and interactive. Constant currency does not take currency fluctuations into account.
Despite the blazing growth of AI-led revenue, Accenture maintained its full-year guidance of 2-5% revenue growth in local currency, which is lower than the 7% seen in its previous fiscal. The company also said it would stop reporting GenAI revenue as the technology has become pervasive. TCS does not provide annual revenue guidance.
Where’s the AI money?
There is growing consensus that AI is really not adding to overall revenues of companies. Experts say automation tools are eating into business for IT outsourcers by replacing mundane human tasks.
This has led to a kind of deflationary pressure on billings, with monies shrinking for traditional back-end IT work including customer support, software development, maintenance, and code generation.
In a note dated 16 December, BMO Capital Markets analysts Keith Bachman, Adam J. Holets, Bradley Clark, and Jonathan Stein said: “Our belief is that generative AI revenue for IT services is replacing other sources of revenue at this juncture, and thus IT services companies have not really benefited from net new spend to this point, and we do not currently expect this to create net new spend in CY26."
A second expert echoed BMO’s concerns. “AI is clearly disrupting the traditional tech services market by simultaneously creating new opportunities while the advances in code generation and the 30-40% productivity that this unleashes in the SDLC (software development life cycle) compresses revenue," said Peter Bendor-Samuel, founder of Everest Group, a Texas-based IT research firm. “This impact can be seen across the industry."
Even TCS chief executive officer K. Krithivasan has highlighted potential revenue cannibalization from AI.
“We are encouraging all our associates to adopt an ‘AI first’ culture. What does AI first culture mean – for us, every time we do a project, every time we engage with our customers, the first question we ask is ‘what can AI do here,’ can AI do something better than what we are doing, even if it is going to cannibalize our revenue," Krithivasan said during his presentation at TCS’s analyst day on 17 December.
A similar opinion was voiced by India’s third-largest IT firm, HCL Technologies. C. Vijayakumar, the company’s chief executive, said during its post-earnings analyst call on 13 October, that the company is transforming its service offerings “even if it means disrupting parts of our existing revenue base".
HCL Tech reported about $100 million in advanced AI revenue in he July-September 2025 period, covering technologies like agentic AI, physical AI, AI engineering, and AI factory. The company’s classifications do not include classical AI, data analytics, or services delivered using GenAI and agentic AI. HCL Tech ended last year with $13.84 billion in revenue, up 4.3% year-on-year.
For now, only four of the country’s 15 largest IT services companies list GenAI revenue, including TCS, HCL Tech, Sonata Software Ltd, and Happiest Minds Technologies Ltd. Sonata projects $330 million in AI revenue by FY28, while Happiest Minds recorded about $3.3 million last fiscal.
The path ahead
Nonetheless, TCS’s Krithivasan believes demand for ‘new-age services’, including AI, will continue to outpace traditional IT services.
“With the increased investment and a stronger strategy around our new partnerships, new investments, and investments in initiatives like data centres, and our new strategy, we believe that the new-age services will grow faster to offset any deceleration or drag in the traditional (IT) services," said Krithivasan.
However, concerns around AI adoption persist. During a post-earnings call on 18 December, Accenture management noted that automation adoption remains in early stages, with AI deployed across just 14% of its 9,000 clients.
“It is early innings, which means there is significant opportunity ahead. Technology is rapidly evolving, while enterprise adoption at scale is nascent, demand continues to grow, and IDC estimates that the total addressable market for advanced AI is expected to grow more than 40% through 2029 from roughly $20 billion today to over $70 billion," said Julie Sweet, chair and chief executive of Accenture, during the post-earnings call.
topics
