Artificial intelligence (AI) is not expected to replace IT services companies in the near future, as per a recent report by JP Morgan’s Asia Pacific Equity Research team. Instead of diminishing the industry, AI is seen as a tool that will assist companies in accomplishing more work within existing budgets. The report, titled “India IT Services: Looking through the AI fog 2 — Discounted for extinction? Div/FCF yields at crisis levels,” suggests that concerns about AI wiping out Indian IT firms may be overstated.
JP Morgan’s report argues that AI will open up new work avenues rather than diminish opportunities for IT vendors. Drawing parallels with past technological shifts like offshore labor, enterprise software, and cloud computing, the report emphasizes that new technology has historically transformed the way companies operate without eradicating IT services. AI is projected to follow a similar trajectory by enabling firms to manage additional projects without significant budget increments.
The report highlights the rising demand for tasks such as modernizing legacy systems, developing AI agents for operations, ensuring AI system trustworthiness, and integrating physical AI solutions. These emerging areas are expected to require substantial service support. Additionally, the report notes that enterprise technology teams often face budget constraints compared to business expectations.
JP Morgan cautions against the oversimplified belief that AI can autonomously generate enterprise-grade software and replace the integration and customization work performed by IT service providers. Referring to IT firms as the “plumbers of the tech world,” the report underscores their essential role in ensuring the smooth operation of complex systems within large organizations. The recent market downturn in IT stocks is attributed to investor worries regarding AI advancements potentially impeding revenue growth and shrinking the market scope for Indian IT companies.
