Rapid advances in artificial intelligence are raising fresh concerns about the long-term outlook for the IT services industry, as analysts warn that automation driven by companies such as Anthropic could structurally undermine high-margin application services revenues. The shift could create downside risks for both earnings growth and stock valuations across the sector.
Shares of India’s software exporters fell 0.7% on Thursday, extending heavy losses from the previous session, when the sector plunged 6% in its worst single-day decline in nearly six years. The selloff was triggered by fears that AI-led automation from U.S. firms including Palantir could shorten project timelines and disrupt the industry’s traditionally labor-intensive business model.
The pressure has not been limited to India, with weakness spreading across global IT stocks this week as investors reassess exposure to potential AI-driven disruption.
Analysts at Jefferies said the outlook remains challenging, warning that Anthropic’s and Palantir’s recent claims underscore how AI could eat into application services revenue—a segment that typically accounts for 40% to 70% of total sales for many IT firms. According to Jefferies, growth expectations embedded in current consensus forecasts may not fully capture these risks, leaving valuations vulnerable.
However, not all analysts share the same level of pessimism. JPMorgan said that while AI-related disruption risks are real, it may be premature to assume that new automation tools will rapidly replace entire layers of mission-critical enterprise software.
Domestic brokerage Kotak Institutional Equities also played down the severity of the move, characterizing the selloff as “plenty of panic over a little flutter,” suggesting that market reaction may have overshot the underlying fundamentals.
