Artificial Intelligence (AI) is rapidly reshaping India’s information technology (IT) industry. While it has emerged as the biggest growth engine for leading companies such as TCS, HCLTech, and Wipro, it is also challenging one of the industry’s biggest strengths—its ability to generate stable, predictable, and recurring revenue.
For decades, Indian IT companies built their businesses on long-term outsourcing contracts that delivered consistent cash flows. AI, however, is introducing a different business model, where many projects are shorter in duration and revenues can fluctuate significantly.
AI Is Fueling Growth Across India’s Top IT Companies
Demand for AI services continues to rise, with leading Indian IT firms reporting strong growth in their AI businesses.
During TCS’ post-earnings conference call, CEO K. Krithivasan explained that many AI assignments currently last only one or two quarters. Once a project is completed, companies must compete again to secure the next AI engagement.
His comments highlight a major shift in how AI-related business is developing across the sector.
TCS’ annualised AI revenue has reached $2.6 billion, reflecting a 13.6% sequential increase, while the company’s overall business grew just 0.4% sequentially in constant currency terms during the June quarter.
Similarly, HCLTech reported that its advanced AI business has achieved an annualised run rate of $688 million, growing more than 60% year-on-year, compared with overall company growth of just 3.9%.
These numbers underline how AI is significantly outpacing traditional IT services.
AI Is Changing the Traditional IT Business Model
According to industry experts, AI is not simply replacing existing IT services—it is fundamentally transforming how technology companies operate.
Abhishek Pathak, IT & Tech Analyst at Motilal Oswal Financial Services, believes the industry is undergoing a broader business model reset rather than a direct replacement of conventional IT services.
Unlike traditional outsourcing contracts that often run for several years, AI projects are currently more implementation-focused and shorter in duration, making revenue less predictable.
Enterprises Are Funding AI by Reallocating Existing Budgets
Although demand for AI continues to grow, overall enterprise technology budgets have not increased at the same pace.
Speaking after Wipro’s quarterly results, CEO Srinivas Pallia noted that companies are funding AI initiatives by shifting money from existing IT budgets rather than significantly increasing overall technology spending.
This explains why many IT companies continue to report modest overall revenue growth despite strong momentum in AI-related services.
Pallia believes this phase is temporary, comparing AI’s evolution to the earlier cloud computing transition.
Just as cloud adoption eventually evolved from consulting projects into long-term managed services, AI could follow a similar path over time, resulting in more stable revenue streams.
HCLTech Sees Recurring AI Revenue Emerging
HCLTech believes this transition has already begun.
CEO C. Vijayakumar said the company’s advanced AI portfolio now includes both short-term implementation projects and recurring AI-based offerings.
These recurring revenue streams include:
- AI factories
- Physical AI solutions
- Proprietary AI software products
- Subscription-based AI platforms
This mix provides a balance between project-based work and longer-term recurring income.
Investors Need New Ways to Measure AI Growth
As AI becomes a larger part of IT companies’ businesses, analysts argue that traditional financial metrics may no longer provide a complete picture.
Historically, investors evaluated IT companies using indicators such as:
- Revenue growth
- Large deal wins
- Operating margins
- Revenue visibility
However, experts believe AI requires a different set of performance indicators.
According to Biswajeet Mahapatra, Principal Analyst at Forrester, investors should avoid directly comparing AI revenues with mature IT services like application management or infrastructure support, which naturally generate multi-year recurring income.
Instead, more meaningful indicators include:
- Growth in AI bookings
- Expansion of AI project pipelines
- Average AI deal size
- AI adoption within larger enterprise contracts
- Conversion of implementation projects into long-term managed services
AI Creates Both Opportunities and Challenges
Artificial Intelligence is creating two contrasting trends within the IT industry.
On one hand, it is opening new business opportunities as enterprises increasingly invest in AI-powered transformation.
On the other, AI is improving software development productivity by automating coding, testing, and other engineering tasks.
This automation could reduce demand for certain traditional IT services, potentially offsetting some of the industry’s existing revenue base.
Industry experts believe the long-term success of AI will depend on whether new AI-driven business grows faster than productivity gains reduce traditional service revenues.
AI Revenue Still Represents a Small Portion of Business
According to Bajaj Broking, AI currently contributes less than 10% of total revenue for most large Indian IT services companies.
At this early stage, fluctuations in AI revenue are expected because many projects remain experimental and relatively short in duration.
However, Payal Pandya, Vice President of Private Research at Bajaj Broking, believes AI contracts will become larger and longer as the technology matures and becomes more deeply integrated into industry-specific operations.
That evolution could gradually create more stable and scalable revenue streams.
Enterprise AI Adoption Is Becoming More Strategic
Research firms also believe enterprise AI adoption is moving beyond pilot projects.
According to Namratha Dharshan, Chief Business Leader for India Research at ISG, businesses are increasingly signing large-scale AI transformation contracts with longer durations.
She noted that contracts valued above $100 million are now lasting approximately two years longer than before, reflecting growing confidence that AI implementation is a long-term strategic initiative rather than a short-term experiment.
This shift suggests enterprises are beginning to deploy AI across multiple business functions instead of limiting it to isolated use cases.
AI Operations Could Become the Next Big Recurring Revenue Business
While AI implementation currently dominates industry revenues, analysts believe the biggest long-term opportunity lies in AI operations.
As companies deploy hundreds or even thousands of AI models across their organizations, they will require continuous support for:
- AI governance
- Model monitoring
- Cybersecurity
- Compliance
- Performance optimization
- Lifecycle management
These services closely resemble the managed services business that became one of the biggest revenue generators for Indian IT firms over the past two decades.
Experts believe AI operations could eventually become the next major annuity business for the sector.
The Road Ahead for Indian IT
The Indian IT industry has largely succeeded in convincing enterprises to invest in Artificial Intelligence. AI pilots are increasingly moving into production, and spending continues to rise across industries.
The next challenge, however, is transforming today’s project-driven AI work into sustainable, long-term businesses centered on operations, governance, security, and continuous optimization.
Ultimately, the future success of companies like TCS, HCLTech, Wipro, and their peers will depend not just on winning AI implementation projects, but on building recurring AI service models that deliver stable revenue over the long term.
As AI continues to evolve, investors may also need to rethink how they evaluate IT companies—focusing less on short-term quarterly AI revenue growth and more on the industry’s ability to build lasting enterprise AI ecosystems.