Infosys, TCS, Coforge, Mphasis shares: Targets as Amazon, Google, Microsoft ramp up capex

Antique Stock Broking in a note on IT sector said all three major hyperscalers namely Amazon Web Services (AWS), Microsoft Azure and Google Cloud Platform (GCP) ramped up capex in the June quarter, with the current capex wave skewed towards capacity building, including GPUs, data centres and cloud networks.

This, the brokerage said, hits hyperscalers’ balance sheets well before translating into application such as layer development, integration and AI-adoption work that Indian IT firms bill for.

The brokerage maintained its 'Hold' stance on large cap IT services companies including Infosys Ltd, Tata Consultancy Services Ltd (TCS), Wipro Ltd, HCL Technologies Ltd and Tech Mahindra Ltd. It remained selective on mid-caps, with Coforge and Mphasis as its preferred names.

Antique said accelerating hyperscaler growth and record backlogs point to a large multi-year pipeline of enterprise workloads still to be migrated, integrated, and managed. This is the layer where Indian IT partners actually monetise, it said adding that the conversion towards application demand typically lags infrastructure spending by several quarters.

In the near term, it expects hyperscalers to continue to ask Indian IT services partners for lower prices as they continue to invest in capacity-building.

Antique said Google Cloud revenue jumped 82 per cent YoY to $25 billion, with backlog surging $50 billion sequentially to $514 billion. AWS posted its fastest growth in 18 quarters at 37 per cent YoY, marking the fifth straight quarter of acceleration, with backlog at $496 billion, Antique said.

It said Azure grew 43 per cent YoY, pushing Microsoft Cloud revenue to $59 billion (up 27 per cent) and full-year Azure revenue past $100  billion.

Microsoft's commercial RPO also jumped 84 per cent YoY to $678 billion.

In the case of large Indian IT firms, organic revenue growth was flat or decelerating sequentially and guidance bands were maintained despite strong bookings. The  management teams were explicit that macro uncertainty continue to create headwinds.

"Discretionary projects are being deferred or scrutinized more closely, decision cycles have lengthened, and one-off shocks - the Middle East conflict
for Accenture, sharp discretionary cuts at two US telcos for HCLTech, and US healthcare-sector budget stress for both HCL Tech and Wipro - are adding to the pressure on an already cautious base," Antique said.

Antique suggested targets of Rs 2,385 for TCS, Rs 1,115 for Infosys, Rs  1,225 for HCL Tech, Rs 190 for Wipro and Rs 1,475 for TechM. Coforge is a 'Buy' with a target of Rs  2,000. Mphasis, another 'Buy', has received a target of Rs 2,925.