The sharp correction in information technology stocks is being driven largely by artificial intelligence-related fears rather than fundamentals, according to multinational brokerage JPMorgan. As a strategy, analysts recommends a barbell approach — investing in both high-risk and no-risk assets and avoids mid-range risk options —focused on deep-value large caps, with overweight calls on Infosys Ltd., Tata Consultancy Services Ltd., Persistent Systems Ltd, and Sagility Ltd.
The brokerage said IT services firms will continue to play a critical role as the "plumbers of the technology world", even as agentic AI expands its ability to write more software and automate complex tasks.
While tools such as Claude Code's Cowork plugin can significantly speed up development work, JPMorgan argued that it is simplistic to assume these solutions will instantly deliver enterprise‑grade output across all functions. Instead, the firm expects close partnerships between AI tool makers and IT services companies, potentially opening new workstreams and opportunities.
AI should be considered as another productivity tool just like offshoring, enterprise software, or cloud that enables companies to accomplish more within the same budget, rather than replacing IT services altogether. The sector, analysts argued, will still need large-scale services firms to deploy, integrate, customize, and maintain these technologies.
Valuations of IT companies currently imply roughly 4% terminal growth with no near-term acceleration, based on reverse Discounted Cash Flow (DCF) estimates. A scenario with over 30% downside would require zero terminal growth and no future expansion—conditions that the brokerage considered "overly pessimistic" given the cyclical recovery and new AI-driven demand emerging.
The brokerage highlights that FCF and dividend yields indicate deep-value opportunities, with levels comparable to periods of severe market dislocation such as the global financial crisis and the COVID crash.
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