HCL Technologies delivered impressive Q3 results that significantly outpaced industry peer TCS, showcasing strong deal momentum and revenue growth that led to raised guidance for the fiscal year. The contrasting performance between these IT giants provides valuable insights into the current state of technology sector demand and recovery patterns.

HCL Technologies Posts Strong Quarter with Record Deal Wins

HCL Technologies reported robust 4.2% sequential constant currency revenue growth, substantially aided by its products and platforms business during the seasonally strong December quarter. The company achieved remarkable success in deal acquisitions, with total contract value of new wins surging 43.5% year-on-year to reach a multi-quarter high of $3.00 billion.

Management attributed the strong booking momentum to applications and engineering and R&D services, noting that annual contract value bookings in Q3FY26 reached the highest level in four years. Based on this performance, HCL raised its FY26 constant currency year-on-year services revenue growth guidance to 4.75-5.25% from the previous 4-5%, while overall growth guidance was narrowed to 4-4.5% from 3-5%.

TCS Shows Modest Growth Amid International Market Challenges

TCS presented a more subdued performance with modest 0.8% sequential constant currency revenue growth, driven primarily by its India business while international markets remained under pressure. The company's deal acquisition momentum weakened, with total deal wins falling 9% year-on-year to $9.30 billion.

Despite not providing formal revenue growth guidance, TCS management indicated that based on deal pipeline and gradually improving demand conditions, revenue growth in international markets is expected to be higher in 2026 than in 2025.

Margin Performance and Operational Efficiency

HCL's earnings before interest and tax margin expanded significantly by 120 basis points sequentially to 18.6%, even as services margins slipped 10 basis points to 16.4%. The company maintained its FY26 EBIT margin guidance of 17-18%, which includes restructuring costs but excludes one-time impact from new labour codes.

TCS's EBIT margin excluding one-off items remained flat sequentially at 25.2%, with the company reiterating its aspirational margin band of 26-28%, which management noted would require better revenue growth to achieve.

AI Revenue Momentum Continues for Both Companies

Both technology leaders demonstrated continued traction in artificial intelligence services. HCL's advanced AI revenue rose 19.3% sequentially in constant currency terms to $146.00 million, while TCS's annualized AI constant currency revenue grew 17% to $1.80 billion. TCS management highlighted that clients are transitioning from experimentation phases to scaled AI implementations.

Market Response and Analyst Outlook

Despite strong results, both stocks showed minimal movement following earnings announcements, reflecting investor caution amid unclear evidence of broad-based demand revival. Jefferies India noted that TCS's Q3 results offer limited evidence of growth pickup in international business, estimating TCS will deliver around 5% recurring earnings per share CAGR over FY26-28, compared with an estimated 10% recurring EPS CAGR for HCL.

HCL trades at FY27 estimated price-to-earnings multiple of 23x, representing a slight premium to TCS's 21x multiple. Goldman Sachs characterized the read-across from these results for the broader IT sector as neutral to modestly positive, emphasizing that with demand visibility remaining cloudy through FY26 and FY27, investors will need to be highly selective in their approach.

HCL Technologies CEO C Vijayakumar has emphasized the importance of transparency in AI revenue reporting, following the company's announcement of significant growth in its advanced AI business during the third quarter.

Strong AI Revenue Performance

The company reported impressive metrics for its advanced AI technologies business during the third quarter, demonstrating substantial momentum in this strategic area.

Vijayakumar stated that the company will continue sharing Gen AI revenue figures as they provide stakeholders with valuable insights into how HCLTech is positioning itself for the future. The CEO highlighted the company's focus on physical AI, AI Factory, proprietary intellectual property, agentic work, and conversational AI as key classified areas for continued reporting.

AI Impact on Deal Structures and Client Relationships

Addressing the evolving landscape of deal renewals, Vijayakumar acknowledged that AI-led deflation has become a reality in contract negotiations. However, the company has adopted a proactive strategy to leverage this transformation for competitive advantage.

The CEO explained that HCLTech has been comfortable passing on AI-driven productivity savings to clients, which has resulted in increased client motivation and expanded wallet share. This approach has proven successful over the past four to five quarters, with the company winning more business from existing clients despite productivity-related pricing pressures.

Transformation of Service Delivery Models

Vijayakumar outlined the fundamental shift occurring in IT services delivery, describing the evolution from purely people-based models to AI agents with human oversight. While acknowledging significant adoption of agentic models in certain areas, he emphasized that effectiveness depends on several critical prerequisites:

• Quality of underlying data
• Process simplification
• Comprehensive agent training with available knowledge
• Investment in foundational infrastructure

The CEO noted that substantial work is underway within large enterprises to establish these foundational elements necessary for extracting direct value from AI agents.

Products Business and Licensing Strategy

Regarding the company's products business performance, Vijayakumar explained that while services are growing faster than products, the data portfolio within the products segment is experiencing strong growth. This growth is being driven by generative AI benefits and strategic acquisitions of startups including Wobby and Zeenea.

The CEO attributed some volatility in overall product revenue to the transition from perpetual licensing to subscription-based models, noting that while overall revenue might fluctuate, the focus remains on building sustainable subscription revenue for long-term growth.

Industry Growth Outlook and Market Opportunities

Despite analyst predictions of modest single-digit growth becoming the new normal for IT services companies, Vijayakumar expressed confidence in the industry's growth potential. He highlighted that the tech services industry, valued at approximately one trillion dollars, sees large players holding only 15% market share, indicating substantial opportunities for expansion.

The CEO identified several growth drivers including better solutions, increased AI adoption, targeting new spend areas, and expanding into underrepresented geographies. While declining to provide specific growth rate predictions, he emphasized the strong growth potential for companies that can effectively capture additional market share through innovation and strategic positioning.