A curious contradiction is unfolding in the global information technology sector. While artificial intelligence, particularly generative AI, is being hailed as the new frontier of growth for major IT services corporations, evidence suggests this red-hot technology is not yet contributing to a net expansion of their overall revenues. Instead, it is primarily improving efficiency and, in many cases, directly cannibalising existing revenue streams from traditional IT work.
The Numbers Behind the AI Growth Story
Recent financial disclosures from industry leaders paint a clear picture of rapid AI adoption. For Accenture Plc, the world's largest IT services firm, revenue from advanced AI more than doubled year-on-year to reach $1.1 billion in the September-November quarter of 2025. This explosive growth starkly contrasts with the company's overall quarterly revenue increase of just 5.95%, bringing in $18.74 billion. Notably, AI-related bookings made up 11% of all new bookings worth $20.8 billion in that quarter, a share more than four times larger than it was two years prior.
On the domestic front, India's Tata Consultancy Services (TCS) reported an impressive 38% year-on-year rise in revenue from AI-led services, calculated in constant currency terms. This segment has been annualized at $1.5 billion as of September 2025. In comparison, other new-age service areas like cybersecurity, cloud, and IoT saw growth ranging between a modest 2% and 9%. Despite this blazing trajectory in AI, Accenture maintained a conservative full-year revenue growth guidance of 2-5% in local currency, lower than the previous fiscal's 7%. The company has also decided to stop reporting GenAI revenue separately, citing its pervasiveness across all services.
Why AI is Creating a Deflationary Effect on IT Billings
There is a growing consensus among analysts and industry leaders that the current AI boom is not translating into net new revenue for IT outsourcers. The core issue is that AI and automation tools are efficiently replacing mundane, repetitive human tasks that formed the backbone of traditional IT service contracts. This includes areas like software maintenance, basic code generation, and customer support.
This replacement is exerting a deflationary pressure on billings. As AI handles more work, the monetary value attached to those traditional services shrinks. In a note dated 16 December 2025, analysts from BMO Capital Markets stated their belief that generative AI revenue is currently replacing other revenue sources for IT services firms. They do not expect this to create net new spending even in the calendar year 2026.
This view is echoed by other experts. Peter Bendor-Samuel, founder of the Texas-based IT research firm Everest Group, explained that AI is disrupting the market by creating new opportunities while simultaneously compressing revenue. He pointed to advances in code generation that unlock 30-40% productivity gains in the software development life cycle (SDLC) as a key driver of this compression.
Leadership Acknowledges the Cannibalisation Trend
Interestingly, the CEOs of leading Indian IT firms are openly acknowledging this dynamic. K. Krithivasan, the Chief Executive Officer of TCS, highlighted the potential for revenue cannibalisation during the company's analyst day on 17 December 2025. He described fostering an 'AI-first' culture, where the first question in any customer engagement is what AI can do, even if the answer leads to disrupting TCS's own existing revenue.
C. Vijayakumar, CEO of HCL Technologies, expressed a similar sentiment during the company's post-earnings analyst call on 13 October 2025. He stated HCL Tech is committed to transforming its service offerings "even if it means disrupting parts of our existing revenue base." HCL Tech reported approximately $100 million in revenue from advanced AI, covering areas like agentic AI and AI engineering, in the July-September 2025 quarter. The company ended the last fiscal year with $13.84 billion in total revenue.
Currently, among India's top 15 IT services companies, only four—TCS, HCL Tech, Sonata Software, and Happiest Minds Technologies—explicitly list GenAI revenue. Sonata Software projects its AI revenue to reach $330 million by FY28, while Happiest Minds recorded about $3.3 million in the last fiscal year.
The Road Ahead: Offsetting Traditional Drag with New-Age Services
Despite the near-term challenges, IT leaders remain optimistic about the long-term trajectory. TCS's Krithivasan believes that demand for new-age services, including AI, will continue to outpace that for traditional IT. He expressed confidence that investments in partnerships, data centres, and new strategies will allow these high-growth segments to offset any deceleration in the legacy business.
However, the journey is still in its early stages. Accenture's management noted in a post-earnings call on 18 December 2025 that AI adoption is nascent, with the technology deployed across only 14% of its 9,000-strong client base. Julie Sweet, Accenture's Chair and CEO, framed this as a significant future opportunity, citing IDC estimates that the total addressable market for advanced AI will grow over 40% through 2029, from roughly $20 billion to over $70 billion.
The industry, therefore, finds itself in a transitional phase. It is actively embracing a technology that promises immense future value but is currently reshaping its revenue landscape in complex ways, replacing old income streams faster than it is creating entirely new ones on a net basis.
