HCL Technologies delivered exceptional performance in the December quarter, reporting total contract value (TCV) bookings of $3 billion driven by strong AI-led demand and large deal wins. The company demonstrated resilience in a selective spending environment, with management highlighting healthy pipeline growth and emerging AI services as key growth drivers.

Strong AI Revenue Growth Powers Performance

The company's advanced AI revenue reached significant milestones during the quarter, showcasing the shift in client spending patterns toward AI-enabling technologies.

According to CEO and MD C Vijayakumar, discretionary technology spending has shifted away from traditional areas toward AI-enabling and AI-adjacent services. The advanced AI revenues include specialized services such as AI data center build-outs, custom silicon for edge inferencing, robotics, and physical AI, rather than embedded AI used across routine service delivery.

Margins Remain Stable Despite Multiple Headwinds

HCL Tech maintained steady profitability metrics while navigating various cost pressures and currency fluctuations during the quarter.

CFO Shiv Walia noted that the quarter benefited from seasonally strong performance in the software business, which posted nearly 35% EBIT margins despite representing only about 10% of overall revenue. The company absorbed a one-time charge of $109 million related to new labor code implementation, with management expecting the annual margin impact to be limited to 10-20 basis points going forward.

Vertical Performance Shows Broad-Based Growth

The company demonstrated strong performance across multiple industry verticals, with technology services leading growth momentum.

Technology services grew 14% year-on-year, driven by demand for custom silicon and AI inferencing solutions across retail, industrial, and manufacturing sectors. BFSI remained one of the fastest-growing verticals with 8% year-on-year growth, while ER&D services posted over 3% sequential growth and double-digit annual growth.

Strategic Workforce Management and Future Outlook

Employee headcount rose by over 6,000 year-on-year while remaining flat sequentially, reflecting the company's strategic approach to workforce planning. Management indicated that future hiring will closely track revenue growth, with AI-led productivity allowing the company to deliver 4-5% growth without proportional workforce increases.

Vijayakumar emphasized the company's selective approach to pricing, stating that HCL Tech remains prepared to walk away from deals that do not meet profitability thresholds. Management expects margins to move back toward the 18-19% range in FY27 once one-time restructuring and labor-related costs subside, with restructuring costs for FY26 expected to be around 50 basis points for the full year.

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.