TCS, Infosys fall far behind Accenture, global rivals in race for AI-related project bookings

TCS had 300 AI-related projects and Infosys 200 such projects, compared with Accenture’s 2,250 AI-related projects in the 12 months through June 2024, Stamford, Connecticut-based Information Services Group (ISG) said.

IBM followed Accenture with 1,000 AI projects, while CGI (with 575 AI projects), Cognizant Technology Solutions Corp (450) and Capgemini SE (400) made up the rest of the top five, ISG said in a report titled “IT & Business Services Industry Update" dated July 11, based on publicly available company earnings and client commentary.

Early business emerging from GenAI is a proxy for investors, analysts and other stakeholders on how IT services companies are becoming future-ready. Any indication of the projects or work being done on AI-related projects might reflect the readiness of tech companies to adopt the new technology.

Racing ahead

Analysts said aggressive positioning, a consulting-led strategy, and a head start in AI-related client engagement by foreign tech companies had given them a lead over Indian companies. To be sure, ISG’s data includes only five pure-play IT services companies of the 10 mentioned and of the five, only two are Indian IT outsourcing companies.

Also Read: GenAI is a force multiplier, and India will be the testbed: McKinsey CTO

“If you were earlier in the cycle selling AI projects, you are converting more deals and you are seeing clients double down on more projects. The global firms got started earlier with clients, hence the head start in project numbers," said Ray Wang, founder of Constellation Research.

Another analyst said the conversations on AI projects between clients and IT services companies – based in India or abroad – were not very different.

“Most, if not all deal announcements, are AI washing. They only have small components of AI, or they are pilots and not meaningful. The international firms are more aggressive in positioning their deals as AI. There is not a lot of difference in the work that they are doing. The only exception is Accenture, which is better positioned in AI, is investing more, and is more aggressive," said Peter Bendor-Samuel, chief executive of Everest Group, a US consultancy.

Also Read: What the TCS bosses have in mind: A growth spurt in the year ahead

Mint has not been able to ascertain AI-only deals for any of the software services companies. According to experts, most deals have an AI component and are not purely AI-based.

A third expert attributed the bump in projects for foreign software service companies to their AI-centric positioning and consulting-first approach.

“For companies like Accenture and other global peers, the conversation starts from the CXO and top management level, where the leaders talk of incorporating GenAI into the deals they are signing with clients. The consulting-led approach… comes in handy during conversations with clients on infusing AI into the deals. For Indian IT services firms, the strategy… is more technology management and data services-led," said Akshay Khanna, managing partner of Los Angeles-based IT advisory firm Avasant.

Emails sent to TCS, Infosys, Accenture, and Cognizant went unanswered until press time.

Generative AI (GenAI) shot to fame when ChatGPT was launched in November 2022, with its ability to turn out written, audio and video content.

"Generative AI is still driving many client discussions and we are engaging in larger programmes to deploy uses cases at scale. We are currently working on over 350 new projects, and we have over 2,000 deals in the pipeline," Aiman Ezzat, chief executive officer of Capgemini, said in the H1 2024 results press release on 26 July.

Optimists say GenAI will be an opportunity, while doomsayers contend it could pose a risk to the outsourcing industry.

For Indian IT services firms that handle much of the world’s IT infrastructure, GenAI-related automation of their work such as software testing, deployment, maintenance and modernisation could hurt future cash generation.

AI project revenue

A smaller AI-related project pipeline would stoke more questions among TCS and Infosys shareholders who have quizzed their company’s bosses on AI strategies and the business impact of the technology. While India’s top two IT services companies have not listed out the money generated through their AI projects, they have given clarity on the projects they are working on.

TCS chief executive officer K Krithivasan said at a post-earnings press conference in July that the company was working on 270 AI projects. Infosys CEO Salil Parekh said in a reply to shareholders at the company’s 43rd annual general meeting that the company was working on 225 GenAI projects.

Accenture, the world’s biggest software services company, secured Gen AI orders worth $2 billion in the first nine months of the fiscal year. Accenture follows a September-August financial calendar whereas Indian IT services firms follow an April-March fiscal year.

Consulting made up half of Dublin-based Accenture’s $16.5 billion quarterly revenue for the quarter ended May 2024.

Also Read: Accenture results: Beware the premature optimism in Indian IT stocks

While talk of IT services companies infusing AI in their offerings has been making the rounds, a rout in the share prices of the world’s biggest tech companies, known as the flagbearers of the AI-led revolution, prompted questions on whether the AI bubble had burst. 

Last week, the ‘Magnificent Seven,’ which includes Google parent Alphabet Inc, Microsoft Corporation Inc, and Apple Inc, reported their largest single-day drop in stock prices since September 2022, owing to lacklustre quarterly performances.

Infosys shares have gained 22.5% so far in calendar 2024, while the TCS stock has advanced 16.2%.

Hype cycle

TCS has said companies should not ride hype cycles when it comes to GenAI.

"We tend to overestimate the effect of a technology in the short run and underestimate the impact in the long run. Because of this, we typically go through the hype cycle," Krithivasan told Mint after its Q1 earnings. “ChatGPT created a lot of early interest. But people are slowly realising that it is most useful for a class of problems. People are realising that it will not take away all the jobs—humans would be required."

Also Read: TCS boss Krithivasan is unafraid of GenAI but unwilling to say the worst is past

Infosys does not share GenAI numbers externally.

“We are not at this stage of disclosing and quantifying externally our revenue from it," Parekh said at its earnings press conference in July. “The focus is really on what enterprises are doing on generative AI."

India’s $254 billion IT services sector reported its weakest dollar revenue growth of 3.8% last year, according to the National Association of Software and Service Companies. TCS and Infosys grew 1.9% and 3.3% on a sequential basis to end April-June with $7.5 billion and $4.7 billion in revenue, respectively.

At least one analyst says Infosys is best poised to capitalise on the AI trend.

“We think Infosys should be part of investor portfolios positioned for a global macroeconomic recovery as we see it as a key beneficiary of discretionary demand pick-up and GenAI adoption," BNP Paribas analyst Kumar Rakesh said in a note dated 19 July.