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IT Results Wrap – AI revenues continue to scale; one-offs impact bottom line

ICICIdirect Research 16 Jan 2026 DISCLAIMER

Modest IT services revenues in a seasonally weak quarter: TCS reported revenue growth of 0.8% QoQ and a decline of 2.6% YoY in constant currency (CC) terms. HCL Tech posted revenues of US$3,793 million, up 4.2% QoQ and 4.8% YoY in CC terms, led by a strong performance in the software segment, which grew 28.1% QoQ CC. IT services revenues for HCL Tech increased 1.5% QoQ. Note, Q3 is typically a seasonally weak quarter for IT services due to a higher number of holidays.
AI revenues continue to scale; TCV momentum mixed: AI-led revenues continued to gain traction across companies. TCS reported annualized AI services revenue of US$1.8 billion, up 17.3% QoQ in CC terms (implying ~US$600 million in Q3), and now forming ~6% of the revenues. HCL Tech’s advanced AI revenues stood at US$146 million, reflecting 19.9% QoQ growth in CC terms and forming ~3.8% of the revenues. Total contract value (TCV) performance was mixed as TCS reported TCV of US$9.3 billion (down 7% QoQ and 9% YoY), while HCL Tech secured deals worth US$3 billion, up 17% QoQ and 43% YoY.
One-offs impact reported margins and bottomline; adjusted margins remain stable: TCS’s adjusted EBIT margin was 25.2%, flat QoQ (excluding one-offs), supported by favourable currency movement, pyramid optimization, productivity gains, and operational efficiencies. These were offset by the full-quarter impact of wage hikes (~50 bps) and increased investments in brand building and partnerships. HCL Tech’s EBIT margin stood at 18.6% (excluding a one-time impact of ₹956 crore related to the new labour code), reflecting an improvement of ~118 bps QoQ after factoring in restructuring costs (~81 bps). Both companies recorded one-time charges related to the new labour code, along with legal and restructuring costs, respectively, which led to a decline in reported bottom line.
Management commentary points to gradual demand recovery: According to TCS management, deal momentum and client discussions remain constructive, which should support improved growth in international business in FY26 and CY26. HCL Tech management highlighted emerging opportunities in areas such as AI infrastructure management and AI engineering services, which are expected to drive growth recovery going forward. We maintain a BUY rating on TCS with a target price of ₹3,780, and a HOLD rating on HCL Tech, given the valuations (at par with Infy/TCS), which limit upsides

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