IT services firms are struggling as low discretionary spending and hesitancy in adopting large-scale AI implementation is hitting mega deals. Analysts say that businesses remain uncertain about the rapidly evolving technology landscape.
A mid-sized IT services CEO said they are observing that the large deals are being put on hold as companies remain in a “wait and watch” mode regarding the return on investment (RoI) on AI projects.
Mega deals in the IT services sector, which started declining in 2022 due to a global economic slowdown, saw a brief recovery in 2023. However, this momentum has stalled once again in 2024.
“One of the key reasons for the lack of large deals in AI is the current hesitancy of enterprises to invest fully in AI projects,” Pareekh Jain, founder of Pareekh Consulting and EIIR Trend said. “The technology is still new, and companies are cautious about being tied down to existing constructs of deals for a longer term”.
He further noted that the last year saw the cancellation of major deals, including a billion-dollar contract with TCS and another significant deal with Infosys, which was also likely due to the uncertainty surrounding the technology’s future.
The reluctance of enterprises to adopt AI at a large scale stems from concerns about the fast-paced changes in the technology landscape. Jain pointed out that clients are unwilling to lock themselves into long-term agreements as they fear that the current technology may quickly become outdated.
This was further echoed by Sameer Dhanrajani, CEO of AIQRATE & 3AI. “Enterprise-wide AI/Gen AI implementation requires a robust strategy aligned with data assimilation, technology infrastructure, and cloud computing. Given the continuous emergence of new Gen AI tools, clients are constantly evaluating the right mix to derive optimal ROI, leading to delays or the execution of deals in smaller chunks,” he said.
The cautious stance of enterprises is also reflected in Cisco’s recent report on AI adoption in India. The report highlights that while there is growing interest in AI, full-scale implementations are still limited as businesses tread carefully, seeking to balance innovation with immediate financial returns. The report underscores that many firms are opting for proof-of-concept (POC) projects to test AI capabilities before scaling up.
Smaller AI Deals Gaining Traction
With enterprises hesitant to make substantial investments in AI, the trend has shifted towards smaller deal sizes.
“Fortune 1000 companies have begun testing AI applications with smaller investments to validate RoI. This has led to a promising shift, indicating a more dynamic market for AI projects in the near future,” Anand Bharadwaj, vice president and head of growth (North America) at Tiger Analytics said.
The emphasis on immediate RoI is driving enterprises to experiment with AI in smaller, manageable projects rather than committing to large-scale transformations.
IT services companies like Infosys and Tata Consultancy Services also reported a significant rise in deals valued between $1 million and $30 million in the quarter ended September. This trend is particularly noticeable in regions such as the Middle East and Asia-Pacific, where companies are keen to enhance their digital infrastructure without taking on the risks of large, long-term commitments.
Increase in AI Investments Despite Hesitation
Despite the cautious approach towards large deals, a survey by Wipro showed that wealth management firms are anticipated to more than double their budgets for artificial intelligence (AI). The report “AI in Wealth Management: Navigating an Evolving Data-Driven Landscape”, which surveyed 100 executives in the United States, explored the impact of AI on the wealth management sector. Wealth management firms are advisors that utilise financial services to meet their clients’ requirements.
The survey predicted that IT budget allocations for AI is expected to soar from 16% to 37% over the next three to five years. All the firms surveyed indicated that they have begun implementing AI across various operations.
However, fewer than half of the respondents (44%) reported extensive use of AI. Nevertheless, those who do use it extensively have noted substantial benefits, with 73% experiencing a significant competitive edge due to AI adoption. Furthermore, 65% of executives foresee considerable AI-driven changes in client relationship management within the next one to two years.
