According to the report, AI is anticipated to structurally shift IT corporations’ enterprise combine in direction of consulting and implementation providers whereas shrinking the share of managed providers.
This transition may enhance cyclicality in income development and require adjustments in expertise methods and working fashions, thereby including new dangers for IT corporations.
It said “AI may structurally change IT business mix towards consulting/ implementation while shrinking managed services”.
Jefferies famous that regardless of a 16 per cent fall in IT shares year-to-date, the sector nonetheless affords larger draw back threat than upside potential.
Reflecting these considerations, the brokerage mentioned it has lowered its earnings per share (EPS) estimates for the sector by 1-4 per cent and expects earnings to develop at a compound annual development price (CAGR) of 6 per cent over FY26-28.
The report highlighted that whereas IT corporations will stay related; the character of consumer engagements is anticipated to endure a structural transformation. Companies are prone to see the next share of advisory and implementation-related work, whereas utility managed providers, which presently contribute about 22-45 per cent of revenues, may face sharp income deflation.
It added that the extent and timing of this income deflation in managed providers may intensify as AI instruments proceed to enhance and develop into extra succesful.
The brokerage famous that AI-driven efficiencies might scale back the necessity for conventional managed providers, thereby impacting a good portion of IT corporations’ income streams.
At the identical time, the rising share of advisory and implementation work is anticipated to make income development extra cyclical, as these providers are typically extra depending on consumer spending cycles in comparison with recurring managed providers contracts.
Further, the report emphasised that this shift would require IT corporations to make vital adjustments to their expertise and working fashions.
Firms might must spend money on constructing new expertise and capabilities aligned with AI-led consulting and implementation providers, which may enhance operational complexity and execution dangers.
So the report maintained that whereas AI presents alternatives, it additionally introduces structural dangers for the IT sector, prompting the brokerage to decrease its earnings outlook and stay cautious on the sector’s near- to medium-term development trajectory.
