- Jefferies cut price targets for TCS, Infosys, Wipro citing AI-driven revenue deflation risk
- AI may cause 20% revenue decline in IT services from 2025 to 2030, Jefferies forecasts
- IT service growth expected at 1.5%-3% CAGR from 2024-29 due to AI impact
TCS, Infosys and Wipro's share price targets were reduced by Jefferies, as the research firm believes that AI may drive 20% revenue deflation in IT services over CY25-30, said Jefferies on Friday. The brokerage said that the revenue-deflation's impact in IT services will be higher on high-margin revenue streams. "This is likely to keep the growth of our coverage limited to 3.8% CAGR and keep margins in check."
The brokerage further added that, "We lower our revenue and earnings-per-share estimates by up to 5% and cut the target price by up to 10%." Among large caps, Infosys Ltd and HCLTech Ltd have a lower risk of revenue deflation, the brokerage said. It further added that, "We prefer Coforge Ltd & Hexaware Ltd and have an underperform rating on Tech Mahindra Ltd & Wipro Ltd."
The Brokerage has reduced target prices across companies:
TCS – Maintain Hold; target price cut to Rs 3,230 from Rs 3,480
Infosys – Maintain Buy; target price cut to Rs 1,750 from Rs 1,860
HCL Tech – Maintain Buy; Target price cut to Rs 1,680 from Rs 1,850
Wipro – Maintain Underperform; Target price cut to Rs 220 from Rs 235
Tech Mahindra – Maintain Underperform; Target price cut to Rs 1,315 from Rs 1,400
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The brokerage noted that AI is likely to limit growth in the IT services market to 1.5%-3% CAGR over 2024-29 due to three key reasons.
Clients may delay IT spending on concerns of rapid AI advancements rendering current investments obsolete.
AI-led productivity gains may impact existing IT services revenues by 20% over FY25-30, while growth opportunities arising from AI may be back-ended.
Clients have not fully realised ROIs on elevated incremental tech.
The brokerage further noted that, between 2021 and 2024, average annual spending reached $280 billion, a significant increase from the $130 billion recorded over the 2016-2020 period.
"We anticipate our coverage to grow at a compound annual growth rate of 3.8% from FY25 to FY28, driven by market share gains. Among the firms, Infosys and HCL Technologies face the lowest risk of revenue deflation due to AI adoption, while mid-sized companies are exposed to higher risks," it said.
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