Tata Consultancy Services has launched an aggressive strategic transformation, marked by significant acquisitions, infrastructure investments, and organizational restructuring as it seeks to position itself for future growth beyond traditional IT services.

Major Strategic Acquisitions and Investments

The Mumbai-based IT giant has made several landmark announcements in recent months. On December 10, TCS agreed to acquire tech consulting firm Coastal Cloud for $700 million in cash, representing its biggest deal since listing in 2004. This acquisition aims to strengthen the company's Salesforce software capabilities and is expected to close by end-January.

The acquisition followed TCS's announcement of a $6.5 billion investment over six years to build 1GW of data centre capacity, marking the company's biggest strategic pivot beyond its traditional IT services model. Additionally, reports suggest TCS is securing a $1 billion, 10-year contract from Telefónica UK, potentially ending a nearly two-year drought in billion-dollar deals.

Leadership Restructuring and Internal Changes

TCS is undergoing significant internal transformation under the leadership of Tata Sons chairman Natarajan Chandrasekaran, newly appointed COO Aarthi Subramanian, and chief executive K. Krithivasan. The company is promoting middle-level executives to leadership roles amid steady departures from the old guard.

Under Subramanian's oversight, routine operations are being re-examined with leaders regularly questioned about service line gaps and given clear timelines for improvements. Senior executives are being required to spend at least 90 minutes daily upgrading their skills in emerging technologies.

Market Performance and Analyst Sentiment

Despite strategic initiatives, investor sentiment remains cautious. Over the past six months, TCS has been the worst-performing stock among India's four largest IT services firms, declining 4.6%. In comparison, HCL Technologies fell 3.7%, while Infosys and Wipro gained 0.6% and 1.2%, respectively.

However, recent moves have begun to improve analyst sentiment. Four brokerages—ICICI Securities, Kotak Institutional Equities, Deven Choksey Research, and Elara Capital—have named TCS among their top picks for the third quarter, citing improving deal momentum and internal restructuring.

AI Revenue and Growth Metrics

At its analyst day on December 17, TCS disclosed key performance metrics for the first time. The company announced $1.5 billion in annualized revenue from AI as of September, with management stating that its AI business is growing faster than the overall company. The company also shared growth figures for its cybersecurity, digital marketing, and cloud businesses.

ICICI Securities analysts project 0.8% constant currency and 0.4% USD quarter-on-quarter revenue growth, led by BFSI and communication verticals based on deal ramp-ups from previous quarters.

Key Challenges and Outlook

Several factors continue to create uncertainty for TCS's future performance:

• Macroeconomic concerns: Geopolitical tensions in Venezuela and Iran could delay discretionary spending recovery, affecting the $283 billion Indian IT sector
• Growth constraints: Following completion of the $1.83 billion BSNL 4G deployment in 2025, sustaining growth remains challenging
• AI adoption timeline: While TCS reported significant AI revenue, widespread enterprise adoption remains in nascent stages
• Margin pressure: The data centre strategy involves heavy capital expenditure that could impact the company's current 24% operating margin, despite targeting 26-28%

Analysts expect the AI cycle to be more prolonged compared to the sharp post-pandemic cloud growth inflection, with meaningful growth recovery anticipated from FY27 onwards. The company's ability to execute its ambitious strategy while maintaining profitability will be closely watched as it prepares to announce third-quarter results.

Tata Consultancy Services , the Tata Group flagship and India's largest IT services company, is experiencing its worst annual stock performance since the Global Financial Crisis. The company's shares have declined 21.4% in 2025, marking the steepest yearly fall in nearly 17 years and representing only the second negative year for TCS in the past eight years.

Historical Performance Context

The current decline represents the worst performance for TCS since 2008, when the stock plunged 56% amid the global financial meltdown. The previous negative year came in 2022, when shares fell 12.9%, breaking a streak of uninterrupted annual gains between 2017 and 2021.

AI Business Emerges as Key Growth Driver

At its annual investor day held on December 17, TCS highlighted artificial intelligence as a critical long-term growth lever. The company reiterated its ambition to become the world's largest AI-led technology services provider and disclosed detailed metrics about its AI business scale for the first time.

The AI revenue contribution of approximately 5% exceeds the nearly 3% advanced AI revenue reported by some industry peers. AI revenues are growing significantly faster than the core business, with quarter-on-quarter growth of 16.3% and year-on-year growth of 38.2% in constant currency terms.

Strategic Acquisitions and Investments

TCS has intensified its inorganic growth strategy with significant acquisitions and infrastructure investments. The company announced a $700 million all-cash acquisition of AI services and advisory firm Coastal Cloud, expected to close by January 31, 2026. This represents one of TCS's largest acquisitions since its 2004 listing.

In October, TCS acquired US-based ListEngage MidCo for $72.8 million. Additionally, the company has committed $6.5 billion over six years to build 1GW of data center capacity, signaling a shift toward more aggressive expansion.

Sector Challenges and Regulatory Headwinds

The broader Indian IT sector continues to face significant challenges in 2025. While the Nifty 50 has risen nearly 10% this year, the Nifty IT index has declined approximately 13%, reflecting persistent investor concerns about the sector's prospects.

Key regulatory uncertainties include changes to US immigration policy under the Trump administration. The administration announced modifications to the H-1B visa selection process, replacing the random lottery system with a weighted mechanism prioritizing higher-skilled and higher-paid workers. A federal judge has also allowed a proposed $100,000 fee on new H-1B visa applications to proceed, with industry estimates suggesting potential margin impacts of 6% to 7% for Indian IT companies.

Market Performance and Analyst Outlook

Despite current challenges, analyst sentiment on TCS remains largely constructive. Of the 51 analysts tracking the stock, 36 maintain a 'Buy' rating, 10 recommend 'Hold', while five have a 'Sell' call. Shares were trading 0.96% lower on Wednesday at ₹3,215.60, with the stock declining approximately 6% over the past six months.

TCS maintained its operating margin aspiration band of 26% to 28%, emphasizing its continued focus on balancing growth, profitability, and strategic investments despite current market headwinds.