Deals, data centres, AI: Can TCS sell its future-ready story to investors?

Core Viewpoint - Tata Consultancy Services Ltd (TCS) is actively transforming its image from a traditional IT outsourcer to a more dynamic player in the tech industry through significant acquisitions and investments [1][2][3]. Group 1: Recent Developments - TCS announced its largest acquisition since going public, acquiring Coastal Cloud for $700 million, aimed at enhancing its Salesforce capabilities [2]. - The company is investing $6.5 billion over six years to build 1GW of data center capacity, marking a significant shift in its operational strategy [2]. - TCS is reportedly in the process of securing a $1 billion, 10-year contract with Telefónica UK, which would end a two-year drought in billion-dollar deals [3]. Group 2: Leadership and Internal Changes - TCS is undergoing a structural leadership overhaul, promoting middle-level executives to leadership roles amid the exit of older executives [4]. - Under the new COO Aarthi Subramanian, routine operations are being scrutinized, with leaders being held accountable for service line gaps [5]. Group 3: Analyst Sentiment and Market Performance - Despite recent positive developments, TCS has been the worst-performing stock among India's four largest IT services firms, declining 4.6% over the past six months [8]. - Analysts from several brokerages have started to view TCS more favorably, citing improved deal momentum and internal restructuring [7]. Group 4: Growth and Revenue Challenges - TCS faces growth constraints following the completion of a major project, with its data center initiative unlikely to yield immediate revenue [12]. - The company has not provided formal guidance but has indicated that international revenues should improve year-on-year despite muted demand [11]. Group 5: AI and Technological Developments - TCS announced $1.5 billion in annualized revenue from AI by September 2025, although widespread adoption of AI technologies remains uncertain [14]. - Analysts expect that AI will contribute to growth from the next fiscal year, but the growth cycle for AI is anticipated to be more gradual compared to previous tech cycles [16]. Group 6: Margin and Execution Concerns - The data center strategy involves significant capital expenditure, which may pressure margins, alongside costs related to wage hikes and layoffs [17]. - Concerns about execution and strategic clarity have intensified, with TCS losing key accounts to competitors due to delivery issues [18].