Growing, but not adding up: The AI revenue paradox for TCS, Accenture

Artificial intelligence has emerged as the fastest-growing segment for large IT services companies, but with a twist. Experts and industry leaders both say that the red-hot technology is not materially expanding revenues, instead improving efficiency while cannibalising current revenue visibility.For Accenture Plc, the world’s biggest IT services company, advanced AI revenue more than doubled year-on-year (y-o-y) to $1.1 billion, against a 5.95% y-o-y rise in quarterly revenue of $18.74 billion in the September-November quarter.

Further, AI bookings accounted for 11% of the $20.8 billion in new bookings in the same quarter, more than four times their share two years ago.Alongside, Tata Consultancy Services (TCS), India’s largest company in the industry, reported a 38% y-o-y rise in revenue from AI-led services in constant currency terms—to $1.5 billion annualized as of September—compared to 2-9% growth ($9.5 billion revenue) for other new-age services such as cybersecurity, IoT, enterprise solutions, cloud, and interactive. Constant currency does not take currency fluctuations into account.

Despite the blazing growth of AI-led revenue, Accenture maintained its full-year guidance of 2-5% revenue growth in local currency, which is lower than the 7% seen in its previous fiscal. The company also said it would stop reporting GenAI revenue as the technology has become pervasive.

TCS does not provide annual revenue guidance.There is growing consensus that AI is really not adding to overall revenues of companies. Experts say automation tools are eating into business for IT outsourcers by replacing mundane human tasks.This has led to a kind of deflationary pressure on billings, with monies shrinking for traditional back-end IT