Vinod Khosla warns AI may wipe out India’s IT, BPO services, even as IT stocks rebound

Tech billionaire and venture capitalist Vinod Khosla has delivered one of the strongest warnings yet on the impact of artificial intelligence on India’s technology-led services economy, predicting that the country’s IT services and business process outsourcing (BPO) sectors could “almost completely disappear” within the next five years as AI rapidly replaces human expertise.

Speaking to Hindustan Times ahead of the India AI Impact Summit 2026, Khosla, co-founder of Sun Microsystems and founder of Khosla Ventures, said advances in AI will fundamentally dismantle the traditional outsourcing model that has powered India’s growth for decades. “IT and BPO services will disappear, almost certainly within the next five years,” he said. “In the next five years, AI will be better than most humans at most things. There’s very little where humans will be substantially better.”

AI and IT sector

Khosla said the disruption will extend far beyond routine back-office roles. According to him, AI agents will increasingly take over expertise-based functions across accounting, medicine, engineering, sales and even creative work. “AI workers will do accounting better than accountants. An AI worker can be a physician, an oncologist, a mental health therapist, a physical therapist,” he said, adding that chip design and architecture are also ripe for automation.

The long-term employment impact could be severe, Khosla warned. “By the time somebody who’s 22 or 25 today is in their 40s, there will be a lot fewer jobs,” he said, noting that large-scale automation of physical labour through robotics is likely to follow intellectual automation with a lag of about five years.

Shift from traditional IT services

Despite the stark outlook, Khosla argued that India has a major opportunity to reposition itself in the global AI economy. He urged the country’s estimated 250 million young people to move away from traditional IT services and job-oriented education towards building and exporting AI-based products and platforms. “India could become the largest exporter of AI-based goods and services to the rest of the world — not IT services,” he said. He also highlighted AI’s potential to democratise access to healthcare, education and legal services, but stressed the need for India to develop sovereign AI models to avoid dependence on US- or China-led platforms, citing geopolitical and national security risks.

IT sector and IT stocks

Khosla’s warning comes at a time when market sentiment towards Indian IT stocks is showing early signs of stabilisation after a sharp sell-off. The Nifty IT index rose more than 1% on Tuesday, February 17, extending its rebound and signalling a tentative trend reversal. Infosys led the gains on the IT index, rising more than 3%, followed by Coforge, Persistent Systems and HCL Technologies.

On Tuesday, February 17, 2026, Infosys shares closed at Rs 1,391.30, up by 25.70. Wipro shares closed at Rs 215.85, up by 2.59 points. HCL Technologies shares closed at Rs 1,483.70, up by 21.90 points. Tata Consultancy Services shares closed at Rs 2,719.80, up by 13.20 points.

The recovery follows a brutal correction in which nearly Rs 4.86 lakh crore was wiped off the sector’s market capitalisation over nine sessions from February 4, triggered by fears that rapid AI adoption could disrupt the traditional headcount-led outsourcing model.

Investor concerns had centred on AI creating near-term headwinds for deal wins, pricing power and topline growth. UBS said Indian IT services stocks have undergone a sharp correction, with the Nifty IT index falling about 13% over the past two weeks, as investor concerns over long-term valuations intensify. The global investment bank noted that worries around rapid advances in agentic AI, highlighted by recent developments involving Anthropic and Palantir Technologies, have pushed fears of structural disruption in the traditional staff-augmentation-led IT services model to the forefront. UBS said current market valuations now imply terminal free cash flow growth of 4–6%, down from 6–7% a month ago, with FCF yields nearing 6% — levels seen during earlier stress phases such as the cloud slowdown and the COVID-19 downturn.

However, recent developments have helped ease some of those anxieties. Infosys’ strategic collaboration with Anthropic, announced last week, and broader discussions at the AI Impact Summit 2026 have shifted the narrative from disruption to adaptation. According to a Bloomberg report, analysts at HSBC and JPMorgan said Indian IT firms could benefit as more global clients seek partners to integrate AI into their operations rather than build capabilities in-house.

Infosys-Anthropic tie-up

Infosys’s tie-up with Anthropic, which integrates Claude models with Infosys’s Topaz AI platform, lifted the stock by around 2%, signalling investor confidence that credible AI partnerships could support medium-term deal momentum. Large IT firms are increasingly positioning AI as a productivity and margin lever embedded within existing contracts, rather than as a standalone revenue driver.

However, employment concerns remain a key overhang. Stock market veteran Devina Mehra told Business Today that while Indian IT companies are likely to successfully pivot their business models, the sector may no longer act as a large-scale employment engine. She noted that past technological shifts eventually created new jobs, but cautioned that the transition to a less people-intensive IT model could cause significant near-term pain. Such a slowdown, she warned, could have ripple effects across sectors such as real estate, food services and urban consumption, exacerbating India’s broader employment challenges even as corporate profitability adapts to the AI era.