TCS Bets Big on AI with $6.5 Billion Data Centre Investment

TCS to Build 1 GW AI Data Centre in India, Reports Moderate Q2 Growth | AIM

The company secured strategic multi-year deals totaling $10 billion in Total Contract Value. As TCS announced its Q2 FY26 results, the company set a bold vision, saying it's on a path to become the world's largest AI-led technology services company. The Indian tech giant reported a modest revenue jump of 3.7% quarter-on-quarter (QoQ), and net profit increased 8.4% year-on-year (YoY). The revenues stood at ₹65,799 crore, while the net profits rose to ₹12,904 crore. The company's operating margin expanded by 70 basis points to 25.2%. Showing confidence in its generative AI path, TCS announced a new business vertical to build a one-gigawatt capacity AI data centre in India. Along with this, the company also announced the acquisition of ListEngage for its capabilities in Salesforce. The tech giant also launched an AI-driven operations centre in Mexico City, its eighth

TCS bets big on AI and data centres; every project will be AI-led, says CEO K Krithivasan

Tata Consultancy Services is aggressively integrating AI across its operations, aiming to become the world's largest AI-led tech services provider. The company is investing in platforms, training over 1.6 lakh employees, and expanding into data centres and sovereign cloud. Nearly every client project now features an AI component, driving efficiency and value. Tata Consultancy Services (TCS) is doubling down on its artificial intelligence (AI)-driven transformation strategy while expanding into adjacencies such as data centres and sovereign cloud infrastructure. The company's leadership says this multi-pronged approach will position TCS as the world's largest AI-led technology services provider in the coming years. In an interaction with ET Now, K Krithivasan, CEO & Managing Director, and Aarthi Subramanian, Executive Director, President & COO, outlined how the company's internal transformation, client engagement model, and growth strategy are being reshaped around AI and emerging digital ecosystems. TCS, India's largest IT services exporter, has embarked on an ambitious plan to make every layer of its business "AI-led." Krithivasan said the company's vision rests on five key pillars -- internal transformation, AI-infused services, workforce upskilling, evolving business models, and expansion into adjacencies like data centres and sovereign cloud. "We are investing heavily in building platforms, training our people, and creating infrastructure to lead in AI," he said. "If we have to reach our rightful place, we need to transform internally, embed AI into every client service, and expand into areas that strengthen our presence in the global AI ecosystem." The company has already trained over 1.6 lakh employees in AI tools and processes. "Our workforce transformation is key to ensuring that every TCS employee becomes an AI practitioner," he added. CEO Aarthi Subramanian highlighted TCS's push to create an AI-first culture across its global operations. Over the past quarter, the company provided AI access to more than 600,000 employees and organised the world's largest AI hackathon, where 280,000 employees participated over an eight-week period to build AI-led solutions. "All of us, including the leadership team, got hands-on with AI," Subramanian said. "The hackathon was part of driving an AI-first mindset -- we want every employee to experiment, innovate, and co-create with AI." She added that TCS is redefining every service line with a "human-plus-AI" operating model, combining human creativity and judgment with machine intelligence for faster, more scalable outcomes. TCS's leadership said nearly every client engagement today incorporates AI in some form -- whether for improving productivity, accelerating delivery, or enhancing customer value. "It's becoming difficult to find a project that doesn't have an AI element," Krithivasan said. "Our ambition is that every TCS project will be AI-led, either through automation, analytics, or AI-enabled delivery." Subramanian added that embedding AI into all operations is no longer optional. "To be competitive in today's environment, you must make AI part of every interaction and every workflow," she said. TCS reported $10 billion in total contract value (TCV) for the quarter, with a healthy mix of large, multi-year projects and shorter, outcome-driven engagements. "We now have rapid build projects that last 8-16 weeks, alongside traditional multi-year contracts -- but every engagement now has AI built into it," said Krithivasan. He cited the company's recent Tryg Insurance deal as an example of how AI is being integrated end-to-end -- from IT operations to application development and transformation. TCS is also conducting "AI Innovation Days" with clients, where teams co-create and test use cases in real time to convert hype into measurable business value. While macroeconomic conditions remain uncertain, TCS sees early signs of recovery in global tech spending. "Discretionary demand is slowly improving," Krithivasan said. "Earlier we spoke about project deferments and cancellations -- those have reduced. As trade deals get signed and confidence returns, we expect spending to pick up." For the quarter, TCS reported constant currency revenue growth of 0.8%, improved operating margins by 70 basis points, and added over 18,000 employees. Despite wage hikes and severance costs, the company maintained profitability, supported by cost discipline and efficiency measures. The BFSI segment continues to perform well globally, especially in North America, which remains TCS's largest market. However, UK revenues declined due to a pricing adjustment in one of its long-term insurance contracts. "The UK drop was linked to a scheduled price reduction under a per-policy model -- a one-off adjustment," Krithivasan clarified. One of TCS's biggest strategic moves this year is its expansion into data centre operations -- a segment with massive potential in India. Krithivasan said the company's decision is driven by both business opportunity and the need to deepen its participation in the AI value chain. "India currently has around 1.2 gigawatts of data centre capacity, but demand is expected to grow to 10 gigawatts in the next five years," he said. "We plan to add one gigawatt of data centre capacity over the next five to seven years." The company is also developing a sovereign, secure cloud offering to cater to Indian enterprises and government entities. These initiatives, he said, will strengthen TCS's ecosystem partnerships with hyperscalers and AI players while opening new revenue streams. With a strong order book, improving demand outlook, and a rapidly advancing AI transformation, TCS is positioning itself for sustainable growth. "Our goal is clear -- every project we do will be AI-led," Krithivasan reiterated. "We are embedding AI into everything we do -- from internal processes to customer solutions -- to redefine what it means to be a technology services company." Subramanian echoed this sentiment, saying AI would not just be a technology shift but a cultural transformation at TCS. "We are building an organisation where humans and AI collaborate to deliver outcomes faster, smarter, and better," she said. (You can now subscribe to our ETMarkets WhatsApp channel)

TCS taking a balanced, low risk Path on AI Investments: Sandip Agarwal

Tata Consultancy Services is investing seven billion dollars in data centres and AI infrastructure. This marks a significant strategic move for India's largest software exporter. The company also saw a three percent fall in employee numbers. Experts believe this investment is a positive step for future growth. Other Indian IT firms may follow this capital allocation strategy. India's largest software exporter, Tata Consultancy Services (TCS), has announced a $7 billion investment in data centres and AI-linked infrastructure -- a move that marks one of its most ambitious strategic shifts in recent years. The announcement comes alongside a 3% fall in employee headcount, which the company attributes to efficiency gains from automation and AI integration. Speaking to ET Now, Sandip Agarwal, from Sowilo Investment Managers, said he was not concerned about the decline in staff numbers. "I am not at all surprised with the fall in employee count because in my opinion there must be rationalization of employee across IT services companies," he said. "AI itself means that your efforts will go down by 30-40%, so you cannot keep adding people when your efforts are going down, so that is actually a positive and not a negative for any company in the sector." He added that rationalising the workforce is essential for maintaining profitability and competitiveness in an AI-driven era. "Everyone must rationalize their workforce to maintain their profitability and growth," Agarwal noted. Muted Growth Expectations for FY26-27 Agarwal cautioned investors against expecting a sharp rebound in the next fiscal year. "FY26 you will not see any big numbers, even in FY27 I think from IT services expecting largecap to be more than 6-7% growth is too much," he said. "The largecap IT companies would not see more than mid-single to high-single digit growth and for that growth the multiples are quite decent or maybe, I would say, relatively higher." He also highlighted that new revenue streams from emerging technologies will take time to contribute meaningfully to topline growth. Data Centres Seen as a Strategic Extension On TCS's $7 billion data centre investment, Agarwal struck an optimistic tone, calling it a "very good and positive" step. "These companies have much higher advantage than anyone else who is coming into the data centre business," he said. "They have the technical knowhow, a strong balance sheet, and a cash cow in their services business." However, he warned that such projects have long gestation periods. "Numbers will take time to come because you know data centres take 18 to 24 months when they start contributing to revenue," Agarwal explained. "Margins may be a little lower but at least it is much better than doing the buybacks which they were doing." He further noted that small acquisitions could help TCS strengthen its AI and infrastructure capabilities. "Rather than doing buyback, extending into related areas is a much better thing and obviously when you start that then you can do small-small acquisitions which can keep on adding on your capabilities." TCS Takes the Middle Path on Returns Commenting on the potential impact of the investment on return ratios, Agarwal said TCS had opted for a balanced approach. "There was one path where you go aggressive in R&D and start building AI capabilities which would have burned $20, $30, $40 billion... and the other path was distributing that money for buyback or dividend," he said. "In the middle there was a path where you are not going to burn money like that and that was this business which they have announced where you are certain of making returns." He believes this strategy ensures better use of capital. "Returns could be less or more, but at least it will be much higher than what they would be doing by keeping the money in banks and getting 6-7% return which is also taxable." Sector-Wide Implications According to Agarwal, TCS's move could inspire similar capital allocation strategies across India's top IT players. "The natural read through for everyone will be that whoever has a huge cash balance -- whether it is Infosys, HCL, or Wipro -- they will all take this path," he said. "We have huge demand which will come for data centre in next 5, 7, 10 years and these companies honestly I believe are much better placed than the other data centre, local players who are coming." He described TCS's decision as a "low-risk, right step" compared with other capital deployment options. "This is a good step and this is the right thing to do and this step has much lower risk than any other step they would have taken." 'Good Use of Cash' Even Without High Growth While he does not issue formal price targets, Agarwal maintained that such strategic capital deployment improves the quality of growth in large-cap IT firms. "We believe that largecap IT sector on their own IT services there will not be more than 5-7% growth, but this kind of action which they have taken to utilise cash is really good in my opinion," he concluded.

TCS bets $6 billion on AI data centers: Bold pivot or costly detour?

TCS launches a $6B AI data centre initiative, marking a strategic pivot to co-location AI infrastructure. Analysts split on returns; the move tests financial discipline while targeting future growth opportunities. India's IT bellwether Tata Consultancy Services has kicked off one of its most ambitious bets yet -- a $6 billion foray into artificial intelligence infrastructure that marks a decisive pivot from its traditional services-led model toward the capital-heavy world of AI data centres. Just when India's IT services giants were being blamed widely for having been left out in the AI boom, TCS declared ambitions to become the world's largest AI-led technology services company. The company plans to build a sovereign, co-location AI data centre of up to 1 GW capacity in India over the next five to seven years through a new subsidiary. But with returns uncertain and synergies with its core services unclear, the $6 billion question is whether this bold leap will redefine TCS's growth story or test its financial discipline. Analysts remain split. Some call it a strategic move to future-proof the business as global AI demand explodes; others warn it's a low-margin, high-capex detour that could dilute TCS's stellar return profile. The initiative signals a rare shift in strategy for the usually conservative IT giant, putting its balance sheet to work at a time when the industry is chasing AI scale. TCS will follow a co-location model, where it will provide the passive infrastructure and clients will bring in compute and storage. The company expects the capital intensity to be approximately $1 billion per 150 MW, with funding to be structured through a mix of equity and debt, supported by financial partners, TCS said in an analyst call after declaring its Q2 numbers on Thursday. Management said the first phase will become operational in 18-24 months, with initial anchor clients from hyperscalers, deep-tech AI firms, Indian enterprises, and sovereign projects. TCS noted that India's current installed data-centre capacity stands at approximately 1.2 GW, but demand could expand nearly 10x in the next five to six years, while committed capacity is only 5-6 GW, creating a significant revenue opportunity. Also Read | Is the AI boom becoming a bubble? Why Goldman, JPMorgan, IMF are sounding the alarm Dalal Street isn't entirely convinced. Akshat Agarwal of Jefferies said the move was surprising for three reasons. First, it doesn't materially change TCS's growth profile since at full potential in FY31, revenues from the business will be approximately $1.2 billion and add only 0.6% revenue CAGR over FY25-31. Second, it's a physical infrastructure leasing business with little relationship to TCS's existing IT service business. Third, it's a capex-heavy, low ROCE (8-12%) business, quite the opposite of TCS's current business. Jefferies maintained its Hold rating with a price target of Rs 3,100 based on 21x PE, cutting FY26-28 EPS estimates by up to 1% and expecting only a 4% EPS CAGR over FY26-28E. The firm noted it has not modeled the impact of the data centre foray in its numbers, though the likely impact on free cash flow and payouts may be less than 10% due to the use of debt funding. Motilal Oswal highlighted that TCS will not run cloud workloads or provide managed cloud services -- the data centre will function as a sovereign co-location site. "This means low technology intensity, limited overlap with TCS's core services portfolio, and hence minimal direct synergies," the brokerage noted. The firm added that ROE at the subsidiary level will be lower than TCS's over 50% group ROE, given the capital-intensive nature. However, management guided that at the consolidated level, it will not be margin-dilutive, as external partners will share funding. Motilal Oswal said the move is "best viewed as cash deployment rather than a services-led growth driver." Also Read | TCS Q2 Results: Cons PAT rises 1.4% YoY to Rs 12,075 crore, misses street estimates Nomura questioned the return profile, noting it is "unclear to us how the ROEs of this business will be similar to existing business RoE of ~50% given its capex-heavy nature with IRRs at ~20%." However, not everyone is bearish. Nuvama called the decision "a balanced one, as it explores growth opportunities in the tech ecosystem, with manageable capital commitment (for TCS's balance sheet size) and decent returns profile (though lower than its own)." The brokerage acknowledged TCS is "deploying significant capital, in high-growth but lower RoCE business, than its own," but views it as an acceptable trade-off. JM Financial struck the most bullish tone, calling the co-location foray "value accretive," though it sees "limited synergies with its Services business at this stage." Importantly, the brokerage said, "TCS' willingness to put its balance sheet to use, a significant deviation from its earlier conservative approach, is a welcome change in the current dynamic environment. Investors should encourage this." JM Financial maintained its Buy rating. Beyond the data centre, management laid out five pillars of its AI strategy: making TCS AI-first by enabling employees to learn, experiment, and embed AI in daily work; redefining every service line under a "human + AI" delivery blueprint; building a future-ready talent model by investing in future-ready skills and recruiting top talent locally; making AI real for clients through rapid builds, AI labs and offices, and value-chain solutions across industries; and strengthening ecosystem partnerships while stepping up efforts in M&A and scaling AI platforms -- including the recent acquisition of ListEngage. The company is targeting an annuity stream of revenue from pure-play AI players, deep-tech, hyperscalers, and private and government enterprises in India. While TCS posted a decent quarter on low expectations, its decision to invest in an AI data centre takes it to an interesting crossroad -- one where its legendary financial discipline meets the capital-hungry demands of the AI era. Whether this gamble pays off may define the company's next chapter. (You can now subscribe to our ETMarkets WhatsApp channel)

Can TCS' $6.5 billion AI data centre push revive its growth momentum?

ET Intelligence Group: Tata Consultancy Services (TCS) reported marginally better-than-expected growth in revenue and net profit, excluding a one-time cost item, for the September quarter together with a resilient operating margin. The bigger development was, however, the ambitious plans of the country's largest software exporter to build capabilities in the field of artificial intelligence (AI) and related infrastructure including data centres to cater to domestic and global deeptech, hyperscale, and pureplay AI companies. TCS plans to build 1 gigawatt (GW) of data centre capacity in the country to take advantage of an expected demand-supply gap over the next five years. According to the company's internal calculations, it requires $1 billion to set up 150 megawatts (MW) of capacity, which can be extrapolated to an investment of around $6.5 billion (approximately ₹55,000 crore-₹57,000 crore) to build 1 GW capacity. TCS plans to deploy a phase-wise approach spanning over five to seven years, using a mix of equity and debt funding. TCS has a strong balance sheet with ₹38,829 crore in investments and ₹14,453 crore in cash and bank balance as of September 2025. The company looks well positioned to finance the project through internal accruals. However, the success of the new initiative will depend upon its ability to adapt to new technologies and how quickly it secures demand commitments from clients. The AI related announcement by TCS comes at a time when IT vendors are facing pressure on toplines amid delays in project ramp-ups and rising AI productivity that has challenged the traditional low cost headcount-driven delivery models. For TCS, an analysis of trailing 12-month (TTM) revenue for each quarter over the past two years reveals that the year-on-year rate of growth fell gradually to a meagre 0.2% at the end of the latest September quarter from 6.8% in the September 2023 quarter. On a sequential basis, the picture is more bleak with TTM revenue falling for the second consecutive quarter in the three months to September 2025. Against this backdrop, the company's decision to deploy resources to build an AI ecosystem is an attempt to reimagine profitable growth in a fast-changing technological landscape. It has also announced the acquisition of the US-based ListEngage, which is expected to strengthen the former's Salesforce platform capabilities in marketing and data cloud and Agentforce services. TCS will pay $72.8 million (around ₹640 crore) or around three times of ListEngage's FY24 revenue of $24.3 million. The stock has lost 9.5% since its June quarter result announcement on July 10. Its trailing price-earnings multiple works out to be 22.4 after the latest result. This is at a major discount to the multiple of around 29 which it commanded three years ago, reflecting the weak investor sentiment. The company's foray into the AI ecosystem and a sustained momentum in deal flows (at $ 10 billion in the September quarter) may offer support to the stock in the near term.