TCS

Valuation Turns Reasonable as AI Transformation Gains Traction

has been one of the weakest performers among large-cap IT stocks in recent years, lagging peers on growth. With AI reshaping the technology landscape, investor concerns have centred on TCS’s ability to pivot away from legacy-heavy offerings. At its recent Analyst Meet, the company sought to reassure stakeholders by detailing its AI transformation journey, built on five strategic pillars and supported by investments in AI infrastructure and consulting capabilities. While near-term earnings visibility remains limited, valuations have corrected to more reasonable levels. TCS is embedding an AI-first mindset across its workforce. Over 600,000 employees now have access to AI tools, with 97% of developers and engineers using coding assistance. This internal shift is intended to accelerate delivery efficiency and innovation. The company aims to transition from human-led to human+AI-led delivery models, disrupting existing services. Around $11 billion of revenue—nearly one-third of total—comes from services that can be redesigned with AI. TCS has trained 180,000 employees in advanced AI skills and is hiring AI-native graduates. Over 50% of lateral hires now possess next-gen skill sets, strengthening its talent pipeline. The focus is on helping clients innovate, build, and scale with AI. Pure AI service revenue has reached $1.5 billion (5% of total), growing 16.3% sequentially, well above company averages. TCS is doubling down on partnerships with enterprises, domain experts, and AI natives, while remaining open to inorganic opportunities. It is also building 1GW+ AI data centre capacity with TPG, targeting hyperscalers, AI firms, PSUs, and private enterprises. Margins remain below target at 25.2% in Q2FY26, with management reiterating its long-term goal of 26–28%. The AI data centre is an asset-heavy investment unlikely to materially shift near-term earnings.