IT companies step up GenAI investments as clients ready for paid POCs

However, GenAI has a margin optimisation implication for IT providers as they are also using it internally to cut down development times for client projects

Indian information technology (IT) services companies are ramping up their investments in generative artificial intelligence (GenAI) as clients are now willing to pay for early proof of concept (PoC) and collaborate closely with service providers to explore the potential of this technology (tech).

“We observe that clients of IT companies are allocating 1-3 per cent of their tech budgets as a one-time war chest to experiment with GenAI. This presents a significant opportunity for IT service providers to tap into this pool. Some clients have already commissioned paid PoC with providers, indicating that the time to act is now. Clients are convinced of the early impact of GenAI,” says Nitish Mittal, partner–tech at Everest Group.

Analysts suggest that GenAI may not immediately contribute to IT companies’ revenue.“Early GenAI monetisation will not be as margin-accretive for providers initially, as they need to experiment before scaling it quickly. Eventually, as they acquire more customers for specific use cases, they will achieve economies of scale and leverage their global delivery model to increase margins,” adds Mittal.

However, GenAI holds margin optimisation implications for IT providers as they are also utilising it internally to reduce development times for client projects.

“This enables them to achieve higher productivity for the same tasks compared to earlier. For instance, early results indicate that developer productivity can increase by up to 35 per cent, resulting in immediate savings for tech firms,” further explains Mittal.

According to a report titled ‘State of AI in India’ conducted by Deloitte, there is growing confidence in AI among businesses, including IT sectors, with plans for year-on-year increases in AI investments compared to the previous year.

“IT companies are taking several concerted actions to accelerate AI adoption while maximising the value from AI initiatives. Ensuring a clear AI vision, adopting the right AI strategy, effective change management, and democratising AI adoption will help them develop an AI-ready culture,” says Prashanth Kaddi, partner–consulting at Deloitte India.

Recently, Wipro committed to investing $1 billion to advance AI capabilities over the next three years, accompanied by the launch of Wipro ai360, an AI-first innovation ecosystem that integrates AI into every platform, tool, and solution used internally and offered to clients.

“AI is a fast-moving field. Especially with the emergence of GenAI, we expect a fundamental shift ahead for all industries. New business models, new ways of working, and new challenges, too. This is why Wipro’s ai360 ecosystem places responsible AI operations at the heart of all our AI work,” stated Wipro Chief Executive Officer (CEO) and Managing Director Thierry Delaporte during the announcement.

Cognizant Technology Solutions announced last month that it would invest $1 billion in GenAI over three years.

“We expect Cognizant to be a principal beneficiary of the GenAI opportunity, and we have more than 100 active AI engagements, as well as hundreds more projects using our AI services,” says CEO Ravi Kumar S.

In May this year, Infosys launched Topaz, an AI-first set of services, solutions, and platforms using GenAI tech.

Infosys CEO Salil Parekh recently stated that the company is engaged in 80 GenAI projects, focusing on large language models for software development, text, document, voice, and video.

“Many of our large clients are actively involved in GenAI programmes,” added Parekh.

Several mid-sized IT companies are also making substantial investments in GenAI. For instance, last month, Coforge launched Quasar, a GenAI platform designed to build enterprise AI capabilities. Coforge Quasar comes pre-loaded with a set of more than 100 cognitive and generative use cases, readily available for integration.

In July, LTIMindtree launched Canvas.ai, an enterprise-ready GenAI platform designed to help clients jump-start and scale their generative AI capabilities.

Some analysts believe that AI is still emerging, and the real implications are yet to be seen.

“IT companies have been exploring various use cases for GenAI recently. Since this area is emerging and there are many unknowns, we must wait and watch how IT companies exploit it to translate into something substantial,” says D D Mishra, senior director analyst at Gartner.