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New Delhi: Artificial intelligence is unlikely to replace IT services companies in the near term and may instead expand opportunities for the sector, according to a new report by JP Morgan’s Asia Pacific Equity Research team.
In a note titled “India IT Services: Looking through the AI fog 2 — Discounted for extinction? Div/FCF yields at crisis levels,” the brokerage said concerns that AI could wipe out Indian IT firms appear overstated.
Rather than shrinking the industry, AI is expected to function as another productivity tool, enabling companies to deliver more work within existing budgets. The report argued that, like previous technological shifts — including offshore labour models, enterprise software and cloud computing — AI is unlikely to eliminate IT services but will instead reshape how companies operate.
JP Morgan said AI could help firms handle a greater number of projects without necessarily increasing overall technology spending.
The brokerage highlighted rising demand in areas such as modernising legacy systems, rewriting customised SaaS applications where needed, developing AI agents for business operations, ensuring trust and reliability in AI systems, and integrating physical AI solutions. All these segments, it noted, would require substantial support services.
The report also observed that enterprise technology teams are often underfunded relative to business expectations. In such circumstances, AI is more likely to be deployed to enhance productivity rather than to replace IT service providers entirely.
JP Morgan cautioned against the assumption that AI can automatically generate enterprise-grade software capable of replacing the complex integration and customisation work typically undertaken by IT services firms.
Describing IT companies as the “plumbers of the tech world,” the brokerage underscored their essential role in ensuring that complex systems function smoothly within large organisations.
According to the report, the recent weakness in IT stocks reflects investor concerns that rapid AI advancements could slow revenue growth and reduce the total addressable market for Indian IT companies.
With IANS inputs