Global AI Boom Sparks Surge in Asian Tech; Indian IT Giants See Significant Declines Amid Cautionary Sentiment

Global AI Boom Sparks Surge in Asian Tech; Indian IT Giants See Significant Declines Amid Cautionary Sentiment​

Shares of major information technology companies across India have seen a downturn, dipping by up to 4.5%. This decline comes as global AI-focused enterprises report strong earnings, reinforcing confidence in the sustained demand for cloud infrastructure and artificial intelligence spending. TCS, Infosys, Tech Mahindra, Wipro, and HCL Tech saw share prices fall as investors grapple with the implications of massive AI investments on traditional software service exports.

TCS, India's largest IT company, shed over 4% to trade at ₹2,330 on the BSE. Infosys shares fell by over 4%, recording ₹1,107 per share. HCL Tech plunged 4.5% to ₹1,293, while Wipro declined 3.3% to ₹180 per share. Meanwhile, Tech Mahindra traded 3.5% lower at ₹1,610, and midcap IT stocks like Coforge and Persistent Systems saw drops up to 3%.

Global AI Earnings Fuel Massive Asian Tech Rally​

The renewed confidence in AI infrastructure spending is being driven by global technology giants' robust financial performance. Microsoft led the positive movement after announcing significant Azure cloud growth, which eased market worries regarding the return on heavy AI infrastructure investments. Amazon also experienced a sharp rally, jumping over 9% in extended trading after surpassing analyst expectations with its second-quarter revenue, fueled by continued strength in its cloud computing division.

This bullish momentum rapidly spread to Asian markets. South Korea’s Kospi index rallied an impressive 17%. This ascent was heavily backed by Samsung shares, which surged more than 21%, and SK Hynix, which soared over 26%. Both companies reported strong quarterly results earlier this week. Samsung posted a record quarterly profit driven by its semiconductor business and expects a favorable supply-demand environment for memory chips to persist until at least 2027, citing increased long-term customer contracts.

U.S. Equities Rebound Amid Central Bank Stance​

U.S. equities also bounced back on Thursday after the previous session's sell-off. This recovery was fueled by technology stocks and semiconductor companies leading the advance. The Nasdaq Composite rose 2.8% to close at 25,122.18, ending a six-session losing streak. The Dow Jones Industrial Average gained 613.92 points (1.2%), finishing at 52,208.06, while the S&P 500 advanced 1.7% to 7,437.63.

However, macroeconomic concerns remain acute for global markets. The Federal Reserve kept interest rates unchanged on Thursday, but investor fears intensified as the CME FedWatch Tool indicated that 63% of traders expect the central bank to raise rates at its next meeting. Higher U.S. interest rates are typically viewed negatively for Indian IT stocks because they can curb client technology spending and compress valuations.

Why AI Trends Are Pressuring Indian IT Stocks​

The weak market reaction among Indian tech firms underscores deeper concerns about their reliance on discretionary global spending, particularly from US enterprises. There is a growing apprehension that companies worldwide may be delaying software projects or shifting budgets toward hardware solutions in the face of the AI revolution.

These developments arrive while the Indian IT sector already faces several headwinds. Stocks have been under sustained pressure this year due to subdued discretionary demand and slower deal closures. Concerns persist that AI-driven automation could reduce the necessity for traditional IT services, thus impacting the industry's growth trajectory.

Analyst View: A Potential Tactical Recovery in Indian Tech?​

Amid these pressures, international brokerage firm Jefferies offers a nuanced perspective based on its interactions with over 50 Foreign Portfolio Investors (FPI). Jefferies noted a positive shift in sentiment towards India as concerns regarding the AI trade intensify. The brokerage stated that FPI flows have turned positive, alongside surprising upside in economic and corporate data points.

Given that IT services stocks are bearing the brunt of these AI-related anxieties, Jefferies suggested that the current pause in the AI trade could create scope for a tactical sector recovery. Consequently, the firm closed its longstanding underweight (UWT) rating on IT services by adding Infosys to their model portfolio. The brokerage noted that negative stock reactions to adverse sector news have become softer, pointing toward a potential market bottom.

The Indian IT sector has seen a steep decline of 25% year-to-date. The top four IT majors (TCS, Infosys, HCL Tech and Wipro) are trading at 13-17x PEs, down around 35-50% from their peak within the last two years. While revenue growth for these stocks is expected to remain in the low-to-mid single digits over FY26-28E, Jefferies believes that a reversal of the AI trade could ultimately drive tactical upside after such a sharp downturn.