‘AI not an existential threat’: PPFAS CIO Rajeev Thakkar explains why IT Services & Cybersecurity will benefit 

In the latest note to unitholders, Thakkar said, artificial intelligence is likely to transform the way work gets done, but it may not pose an existential threat to the IT services industry. 

“While AI will eliminate some work, it will create more work in other areas,” Thakkar said. He compared the current AI transition with the computerisation of the banking sector, which changed the way banks operated without permanently reducing employment in the industry. 

 “To my mind, the fears around employment are largely overblown at the aggregate level. Sure, there will  be individual companies and individual roles that may be under threat, and the pain around re-training and re-employment of the affected individuals will be real,” Thakkar added.

What happened when banks moved from ledgers to computers?

Thakkar drew a parallel with the transformation of the banking sector, where technology replaced several manual processes but did not eliminate the need for employees. He argued that AI should be viewed as another stage of technological evolution rather than an existential threat to businesses and jobs.

“Banks moved from handwritten ledgers to computerised branches, to networked branches on a centralised core banking system to internet banking to mobile banking,” he said.

Despite these waves of technological change, banks today employ far more people than they did in the 1980s and 1990s.

The example suggests that technology can eliminate certain tasks without eliminating an entire industry. As businesses adopt new technologies, the nature of jobs can change, while new roles and areas of work emerge.

AI may change IT work, not eliminate it

Thakkar’s base assumption is that AI will write a significant portion of computer code, but the need for implementation will remain.

“What was an outsourced activity to a team of people is now an outsourced activity to a team of people and AI,” he said.

This could change the composition of IT services rather than eliminate the need for them altogether. Companies may use smaller teams supported by AI to deliver work that previously required larger teams.

PPFAS said it will continue to review this assumption as more data becomes available. For now, its exposure to the IT services sector remains within its comfort zone.

IT services sell-off seen as opportunity

PPFAS remains relatively positive in the IT services sector despite the concerns surrounding generative AI. Thakkar said the fund is an outlier in viewing the current sell-off as an opportunity rather than an existential threat.

The fund’s view is based partly on previous technology disruptions. The Y2K problem was once seen as a threat to the need for outsourced IT services. Later, cloud computing and software-as-a-service were also expected to reduce demand for outsourcing.

However, the IT services industry adapted to each of these changes. PPFAS expects a similar evolution with AI.

AI could create new demand

Thakkar also pointed to cybersecurity as an area where AI could create additional work.

As AI makes it easier for hackers to operate efficiently, companies could face greater cybersecurity risks. This could increase demand for cybersecurity services and professionals, partly offsetting jobs and activities displaced by automation.

The fund therefore expects AI to create winners and losers across different parts of the economy rather than simply destroy employment on a large scale.

AI model race gets more crowded

PPFAS also believes the AI market is becoming more competitive, with several companies and models now competing for leadership.

Thakkar pointed to OpenAI’s ChatGPT, Anthropic’s Claude, Google’s Gemini, xAI’s Grok, Meta’s Llama, DeepSeek, Kimi, GLM and Qwen.

The fund believes the most advanced AI model may not necessarily emerge as the only winner. Factors such as data privacy, sovereignty, accessibility, speed and the cost of using AI models could become increasingly important.

PPFAS does not have direct exposure to pure-play AI model companies such as OpenAI or Anthropic.

Hyperscalers have businesses beyond AI

Concerns over the massive capital expenditure planned by AI infrastructure companies are also on PPFAS’ radar.

Thakkar said companies operating large data centres and providing cloud and AI computing services are not dependent solely on the success of one AI model. These companies also have large traditional businesses supporting their investment.

Microsoft has its enterprise software business, Amazon has e-commerce and traditional cloud operations, while Google’s businesses include digital advertising and subscriptions.

According to Thakkar, the new AI-related capex is being supported by rising demand from enterprise customers.

AI capex could slow if demand disappoints

PPFAS does not rule out the possibility of over-investment in AI infrastructure.

However, Thakkar said any excess capacity would not necessarily remain unused permanently. As AI workloads increase, additional capacity could eventually be absorbed.

If demand takes longer to scale, hyperscalers could respond by slowing the pace of capital expenditure, rather than facing a permanent problem from excess capacity.

Chip, memory stocks face cyclical risk

The fund is more cautious about companies supplying chips and memory, which have been among the biggest beneficiaries of the AI boom.

Demand and profit margins in the segment have surged as AI-related spending has increased. However, Thakkar said the current high-margin environment is widely expected to be cyclical.

“We have missed out on the upside in this space and are unlikely to have comparable downside exposure if there is a cyclical downturn here,” he said.

For PPFAS, this means the AI investment story cannot be viewed as a single trade. The fund sees different risks across AI models, hyperscalers, IT services and semiconductor companies.

Overall, PPFAS’ position is that AI will reshape businesses and jobs, but the technology should be viewed as an evolution of existing industries rather than an existential threat to them.