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.

Morgan Stanley has initiated a tactical buy rating on HCL Technologies , expressing optimism about the IT services company's prospects in the near term. The investment bank's recommendation is based on several key factors that point toward potential outperformance.

Growth Visibility and Financial Outlook

The brokerage firm anticipates improved growth visibility for HCL Technologies heading into FY27. This enhanced clarity on future business prospects forms a cornerstone of Morgan Stanley's positive assessment of the company's trajectory.

Margin Performance Expectations

Morgan Stanley has highlighted margin expectations of approximately 18% as a significant driver for their buy recommendation. This margin target represents an important benchmark for HCL Technologies' operational efficiency and profitability in the coming periods.

Analyst Consensus Trends

The investment bank has noted rising consensus estimates among analysts covering HCL Technologies. This upward trend in analyst expectations suggests growing confidence in the company's ability to deliver on its financial and operational targets.

Investment Rationale

Morgan Stanley's tactical buy rating reflects their expectation that HCL Technologies will outperform in the near term. The combination of improved growth visibility, margin targets, and positive analyst sentiment creates a favorable investment thesis for the IT services provider.