AI to impact 20% of existing IT services revenues by FY30: Report
&imwidth=600&imheight=450&format=webp&quality=medium "AI to impact 20% of existing IT services revenues by FY30: Report")
Artificial Intelligence Photograph: (AFP representational)
AI to disrupt IT revenue? A report said companies can hold back on IT spending, fearing that AI advancements could render investments obsolete.
Between 2025 and 2030, artificial intelligence (AI) can lead to the revenue depletion of around 20 per cent in the global IT services sector, said a report by Jefferies. The report by the American agency further said that even though AI will impact IT services revenue, AI could boost productivityin application services and BPOs.
"AI to impact 20% of existing IT services revenues by FY30. We expect AI to drive a 5-35% productivity boost across consulting, Application services, infrastructure services, and BPO services," noted the report.
It said companies can hold back on IT spending, fearing that AI advancements could render investments obsolete. AI can result in productivity gains, reducing revenues from existing IT services. Thirdly, clients have yet to fully realise returns on the heavy incremental technology spending of about USD 280 billion annually during 2021-24.
"AI-led revenue deflation is likely to impact growth in FY27 as revenue deflation from AI may be front-ended and any new spends driven by AI are likely to be back-ended," the report added.
However, the report adds that the deflationary trend is expected to cap overall sectoral growth at just 1.5 per cent to 3 per cent, compounded annual growth rate (CAGR) over 2024-29, compared to the double-digit expansion IT services had enjoyed in previous years.
Overall, non-AI-linked IT services grow at 1-3 per cent year on year.
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It added that non-AI-related IT services revenue will decline at the rate of 1-3 per cent each year.
"While we expect underlying growth in non-AI-related IT services to grow at 1-3% every year, the 20% revenue deflation in these services will result in a 1-3% decline each year. As a result, overall IT services spend globally may grow in the range of 1.5-3.0% CAGR over CY24-29," said the report.
Mid-sized IT firms have a higher risk of revenue deflation, but they will deliver better growth.
"Mid-sized IT firms having higher risks of AI-led revenue deflation, we believe they are still better placed to deliver higher growth as they are better placed to gain market share," noted the report.