AI won’t kill IT services, will create more work

Artificial intelligence (AI) is unlikely to replace IT services companies anytime soon, according to a new report by JP Morgan’s Asia Pacific Equity Research team.

Instead of shrinking the industry, AI is expected to become another tool that helps companies deliver more work within the same budgets.

In a note titled “India IT Services: Looking through the AI fog 2 -- Discounted for extinction? Div/FCF yields at crisis levels,” JP Morgan said fears that AI could wipe out Indian IT firms may be exaggerated.

The report argues that AI will create new areas of work rather than reduce opportunities for IT vendors.

The brokerage compared AI with earlier technology shifts such as offshore labour, enterprise software and cloud computing.

In each of those cycles, new technology did not eliminate IT services but changed the way companies worked.

According to the report, AI will play a similar role by helping firms handle more projects without necessarily increasing budgets.

JP Morgan said there is growing demand in areas such as modernising old legacy systems, rewriting customised SaaS applications where required, building AI agents for operations, ensuring trust and reliability in AI systems, and integrating physical AI solutions. All these areas, it noted, will need strong services support.

The report also pointed out that enterprise technology teams are often underfunded compared to business expectations.

In such a scenario, AI is likely to be used to increase productivity rather than replace IT service providers completely.

The brokerage warned that it is too simplistic to assume AI can automatically create enterprise-grade software and replace the integration and customisation work done by IT services companies.

It described IT firms as the “plumbers of the tech world,” highlighting their crucial role in making complex systems work smoothly in large organisations.

According to the report, recent market weakness in IT stocks reflects investor concerns that rapid advances in AI could slow revenue growth and reduce the total addressable market for Indian IT companies.