AI revenue is surging at Indian IT firms, but how much is adding to growth?

India’s largest IT services companies are reporting rapid growth in artificial intelligence (AI) revenue, but the numbers raise a more fundamental question for investors: how much of this business is translating into incremental industry growth rather than replacing revenue from traditional technology services?

Tata Consultancy Services (TCS), which reported its September-quarter results earlier this month, said its annualised AI revenue had crossed $3.1 billion in the second quarter of FY27, up 19.2% sequentially and accounting for more than 10% of revenue. HCLTech, meanwhile, reported annualised advanced AI revenue of $876 million, up 72% year-on-year in constant currency.

Yet the broader revenue picture remains more subdued. TCS reported 2.4% year-on-year growth in dollar revenue, while HCLTech’s dollar revenue grew 2.2%. The contrast highlights the challenge of translating strong demand for AI-related services into faster overall business growth.

The divergence warrants a closer look beyond headline AI revenue figures to determine whether they represent new business, an expansion of existing client relationships or a shift in conventional IT spending towards AI-enabled services.

According to industry experts, the real test is not merely how quickly AI revenue is growing, but whether it is contributing to the overall growth of IT services companies. If AI makes existing work more efficient while clients demand lower prices, companies will need to win enough new business to offset the resulting pressure.

A key complication is that companies do not necessarily define or report AI revenue in the same way. TCS reports an annualised AI revenue run rate, while HCLTech reports annualised advanced AI revenue. These figures should not be treated as directly comparable measures of revenue recognised in a quarter.

The distinction matters because a fast-growing revenue stream can still have a limited effect on overall growth if it remains relatively small, replaces existing services or takes time to scale into larger contracts.

“The AI-led flattening of legacy spend and its associated repricing pressure are likely to taper over the next 12–18 months as annuity contracts renew and productivity pass-through gets priced in. Until that inflection point, the AI mix will continue to rise while overall growth stays muted, leaving organisations to confront the ultimate structural dilemma: whether AI maturity—driven by agentic workflows and AI-native operations—will create entirely net-new budgets, or simply deliver today’s existing demand at a lower cost,” Siddhartha Tipnis, Partner and Technology Sector Leader at Deloitte India, told Business Today.

For IT services providers, the question is whether AI is expanding the amount clients spend on technology or merely changing how existing budgets are allocated. Enterprises may commission new AI implementations, data projects and agentic AI deployments while simultaneously seeking productivity gains from application development, testing and maintenance contracts.

This creates two competing forces. AI can open new revenue opportunities by enabling services that were previously too expensive or technically difficult to deliver. At the same time, automation can reduce the effort required for existing work, giving clients grounds to seek lower prices.

AI-driven deflation further complicates the growth equation. One critical question is who captures the productivity dividend. If clients retain most of the savings through lower prices, service providers may struggle to translate greater delivery efficiency into revenue growth. If vendors retain some of those gains, they could improve margins or redeploy capacity to win additional business.

The broader industry picture remains mixed. Wipro’s September-quarter IT services revenue grew just 0.6% year-on-year in constant currency, while its total bookings fell 22.9% sequentially on the same basis. Tech Mahindra, on the other hand, reported 15.6% year-on-year growth in consolidated revenue.

The results underline why AI momentum must be assessed alongside the broader demand environment and the pace at which new contracts translate into revenue.