TCS, Infosys shares: Near-term headwinds, long-term opportunity? Cloud capex boom weighs on IT spending

Antique Stock Broking in a fresh note on IT sector said near-term free cash flow (FCF) for big US-based cloud service providers will remain under pressure, as the capex investment cycle peaks in 2026–27. For Indian IT firms such as Tata Consultancy Services Ltd (TCS) and Infosys, among others, the domestic brokerage believes the reallocation of spending toward AI infrastructure is increasingly weighing on traditional outsourcing budgets, resulting in lower discretionary IT projects, and slower growth in services demand.

That said, Antique believes the demand mix may shift toward higher-value AI-native applications, data modernisation and large strategic transformation deals in the medium term. Within its coverage universe, the brokerage has for now retained its 'Hold' recommendation on large-cap IT services companies including TCS, Infosys, Wipro, Tech Mahindra and HCL Technologies. Antique prefers select midcap names such as Coforge and Mphasis, the brokerage said.

Antique said leading cloud companies delivered another strong quarter in the March quarter, with revenue growth accelerating to 37 per cent YoY against 31 per cent in previous quarter, even as elevated capital expenditure commitments remain a key overhang for investors.

Growth, it said, was driven by broad-based GenAI adoption across enterprises, cloud modernisation programmes, and rising demand for data and compute-intensive applications.

"AWS posted revenue of $37.6 billion, up 28 per cent YoY, its fastest growth rate in 15 quarters. Microsoft Azure grew 40 per cent YoY (39 per ecnt in constant currency), driven by both AI and non-AI workloads, as enterprises accelerated cloud migration to access AI capabilities. Google Cloud emerged as the standout performer, crossing the $20 billion revenue milestone for the first time, up 63 epr cent YoY," Antique said.

It noted that hyperscaler capex continued to significantly outpace revenue growth, underscoring the intensity of the ongoing AI infrastructure buildout. Amazon, Microsoft, Google and Meta are collectively expected to invest $460 billion in 2026, up more than 60 per cent from $290 billion in 2025, Antique said.

"AI-led infrastructure investments are putting significant pressure on free cash flow across hyperscalers, as rising capex more than offsets strong operating cash flow growth. Microsoft and Google have already reported lower quarterly FCF due to elevated AI-related spending, while Amazon continues to emphasize that returns from such investments typically emerge a few years after deployment," Antique said.

Among largecaps, Antique retained its targets of Rs 2,900 on TCS, Rs 1,390 on Infosys, Rs 1,430 on HCL Tech, Rs 225 on Wipro, Rs 1,550 on Tech Mahindra (TechM), assigning all with 'Hold' rating.

LTM, Coforge, Mphasis and Cyient - DET and Firstsource are rated 'Buy', with targets of Rs 5,625, Rs 1,875, Rs 3,050, Rs 1,100 and Rs 340, respectively. LTTS, Persistent Systems, Zensar and Birlasoft are rated 'Hold' with targets of Rs 3,875, Rs 5,400, Rs 580 and Rs 355, respectively.