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Below the Measured AI development pace could unlock pent-up IT spending; Extend software runway by Kunal Bajaj, Analyst & Shreya Mehra, Associate - Technology at Choice Institutional Equities

Anthropic CEO Dario Amodei’s call to “pace the frontier”, backed by OpenAI CEO Sam Altman, has raised concerns around the pace of AI infrastructure buildout and driven a sell-off in direct AI-linked companies. In contrast, software stocks have shown relative strength, with Infosys and Wipro ADRs up 6% and 1%, respectively, while Cognizant, ServiceNow and Accenture gained 5–8%. The divergence suggests investors are reassessing the risk-reward across tech, with a more measured pace of frontier-model development potentially reducing concerns around rapid obsolescence and disruption for traditional software.

Read through for Indian IT: A more measured AI development cycle could provide enterprises greater visibility on technology choices, reducing near-term obsolescence concerns and encouraging customers that had adopted a wait-and-watch approach to resume AI and digital spending. This should be incrementally positive for Indian IT, particularly across AI implementation, cloud transformation, governance and cybersecurity. Importantly, this may extend the monetisation window for IT vendors and provide more time to offset productivity-led pressure on legacy services. The structural risk of AI-driven productivity being passed onto clients remains in light, making the pace of AI-led revenue creation versus productivity-led deflation the key monitor.

Near-term, the Fed remains a key catalyst: The recovery in Indian IT ADRs comes ahead of the September 16 Fed decision, with markets pricing in ~90% odds of a 25bp hike. Fed guidance, US yields and inflation commentary, alongside the evolving AI-spending debate, will remain key near-term drivers given Indian IT’s high North America exposure.

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