Global CEOs are under pressure from investors to adopt generative artificial intelligence into their businesses. Asking ChatGPT to do it for them won’t help.
Outsourcers like $200 billion Accenture are sounding the alarm. As the global economy slows, clients that splurged during the pandemic are now pulling back. The U.S. company’s year-on-year revenue growth rate has fallen for six straight quarters. At the four biggest IT firms in India by market capitalisation including Tata Consultancy Services (TCS.NS), Infosys (INFY.NS) and HCL Technologies (HCLT.NS), headcount – a key growth indicator – has shrunk across the last three quarters. Clients are prioritising deals that help them cut costs and realise returns quicker instead of signing expensive contracts to migrate data to the cloud.
Yet utilising AI requires companies to upgrade tech infrastructure. Currently most businesses can’t take full advantage of the development because only about 40% of their applications have been moved to the cloud, according to Accenture CEO Julie Sweet. Consulting firm Gartner estimates spending on the cloud will rise by some 70% to $917 billion over three years to 2025, surpassing traditional IT infrastructure like datacentres. The inevitable windfall partly explains a disconnect between the gloomy short-term outlook and stock market valuations. The top Indian trio and Accenture trade at double-digit premiums to the long-term average of their 12-month forward earnings multiples.
For now, it’s hard to sort winners from losers. Accenture sold $300 million in generative AI deals in the year to August, less than 1% of its $72 billion in total new bookings. Moreover, those deals are also only worth about $1 million each on average. Blackstone-backed Mphasis, a smaller firm, says one-third of its total contract value of $707 million for the quarter to the end of June was from “pure AI deals”. Yet there are no standard definitions.
The full spectrum of how businesses can use generative AI is still emerging but there are obvious applications: customer support agents and coders are seeing productivity increases of 14% and 55% respectively. In just three years, 10% of all customer support will be handled by technology and not people, saving companies some $80 billion in annual labour costs, per Gartner. Clients that wait too long to spend on IT upgrades risk falling behind. No wonder investors are assuming they will loosen their purse strings sooner rather than later.
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CONTEXT NEWS
Accenture forecast full-year earnings and first-quarter revenue below analyst consensus estimates on Sept. 28, signalling that high inflation and interest rates would choke enterprise spending through next year.
The company expects fiscal 2024 adjusted earnings of $12.45 per share, slightly below analyst estimates. Accenture’s revenue guidance at the lower end is below analyst forecasts of $16.4 billion on LSEG.
The Nifty IT index has risen 13.8% this year as of Oct. 10, outperforming an 8.8% rise in the broader Nifty 50.
