AI won't eliminate IT services, will create new work: JP Morgan

A JP Morgan report suggests AI won't eliminate IT services but will act as a new tool, like cloud or offshore labor, creating new work areas. AI will help expand output within budgets, not replace service providers entirely.

Artificial Intelligence (AI) is unlikely to eliminate the need for IT services. Instead, it will become "another tool to address more work with the same budget," much like offshore labor, enterprise software, and cloud computing in previous technology cycles, according to a report by J.P. Morgan's Asia Pacific Equity Research team.

AI as a Tool to Create New Work

In its note titled "India IT Services: Looking through the AI fog 2 -- Discounted for extinction? Div/FCF yields at crisis levels," JP Morgan argued that AI will create net new areas of work rather than shrink the opportunity set for IT vendors.

"Thus AI will be another tool to address more work with the same budget like offshore labor, enterprise software, cloud have been in the past," the report read.

The report highlighted emerging demand in modernising legacy code, rewriting customized SaaS applications where needed, building AI agents for operations, ensuring AI trust and reliability, and integrating physical AI systems.

Enterprise technology teams, long viewed as underfunded relative to business demands, are likely to rely on AI to expand output within constrained budgets - not replace service providers altogether.

Market Fears vs. Report's Reality Check

JP Morgan noted that recent market weakness reflects fears that rapid advances in AI could compress revenue growth and reduce the total addressable market for Indian IT firms.

However, the report cautioned that it is overly simplistic to assume AI can automatically replace the enterprise-grade software and integration capabilities delivered by IT services firms.

They describe these companies as the "plumbers of the tech world," arguing that bespoke AI-driven software deployments will still require significant services expertise to function in complex enterprise environments. "IT firms remain the plumbers of the technology world," it said. "However, it's overly simplistic to assume that AI can automatically generate enterprise grade software and replace the value IT Services firms create across the cycle."

The Nifty IT index is down 10 per cent over the past month, while the broader Nifty index is flat, amid fears that AI advances could disrupt Indian IT services, among other factors, JP Morgan noted.

"The bears argue that AI will eat into Software/SaaS and therefore reduce the scope of IT services work," it noted. (ANI)

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