AI Is Not a Threat: Why India Internet Stocks Face Major Re-Rating, Not Valuation Crash

AI Is Not a Threat: Why India Internet Stocks Face Major Re-Rating, Not Valuation Crash​

Investors have long feared that artificial intelligence could severely disrupt India's internet companies, potentially compressing margins and forcing valuation multiples lower. However, Bank of America Securities (BofA) believes the prevailing narrative is backwards. The brokerage argues that after recent derating in the sector, the greatest risk over the next 12 to 18 months is not further multiple compression but a significant re-rating driven by AI creating incremental growth opportunities.

Beyond Disruption: The Upside of AI for Internet Ecosystems​

While benefits like improved personalization and automated customer support are widely recognized, BofA highlights what remains underappreciated: AI's power to expand addressable markets, improve advertising monetization, and generate entirely new revenue streams. The brokerage noted that internet multiples have been de-rated recently due to disruption concerns but maintains there is limited downside risk.

BofA projects greater upside potential from this perspective. They believe that AI is poised to fundamentally reshape how these platforms monetize their digital ecosystems. Platforms already hold invaluable first-party data, ranging from browsing history and wish lists to price sensitivity and basket composition. AI makes it possible to leverage this data far more effectively.

Meesho's Opportunity: Expanding the Market Through Voice​

Among the companies best positioned to positively surprise investors are Meesho and Eternal. For Meesho, the primary opportunity lies not in efficiency improvements but in expanding India’s massive e-commerce market. The brokerage points to Vaani, Meesho's voice-based AI shopping assistant, as a crucial tool for unlocking demand in Tier-4 and Tier-5 cities.

These markets often feature users with lower written-language proficiency, making traditional app shopping difficult. Voice interfaces can allow millions of first-time users to search, discover, and transact naturally, effectively expanding the platform's addressable market beyond mere competition among existing users. Furthermore, Meesho has embedded AI across its entire ecosystem, from search and recommendations to seller tools and logistics.

Eternal’s Monetization Boost Driven by AI​

Eternal's advantage is centered on monetization rather than pure user acquisition. BofA believes AI can significantly enhance advertising revenues by enabling far more precise targeting using the company's rich trove of first-party data. Better targetability directly translates to higher advertiser returns and increased monetizable inventory, allowing platforms to command greater ad yields over time.

Eternal is also in a strong starting position due to its premium user base and deep engagement with direct-to-consumer (D2C) and FMCG brands competing for digital ad budgets. This combination gives the company significant scope as AI makes commerce advertising more effective.

How AI Can Reshape Commerce Advertising​

More broadly, BofA suggests that using AI on existing data sets could lift commerce advertising revenue as a percentage of gross merchandise value (GMV). For companies possessing rich datasets, this metric could potentially rise from the current 6-7 percent to an estimated 8-10 percent.

In addition to advertising enhancements, the brokerage anticipates that larger platforms will develop new AI-native businesses on top of their existing ecosystems. This includes launching software tools, APIs, and international offerings, creating incremental revenue streams not yet factored into consensus forecasts.

The 'Agent' Risk vs. Structural Strength​

BofA does caution regarding potential risks. Specifically, "agent" AI could lower entry barriers by allowing smaller rivals to partner with large language models like ChatGPT, enabling them to compete more effectively against established platforms. Rising token costs also present a challenge in India’s low-ARPU, high-frequency internet market.

Yet, on balance, the brokerage maintains that these risks are increasingly outweighed by the structural upside. AI may not destroy the economics of India's listed internet platforms; instead, it could fundamentally strengthen them. The next phase of the AI story for Indian tech companies is positioned as a chance to convince investors that AI can be a meaningful driver of earnings upgrades and multiple expansion.