The conversation around technology stocks is heating up again, and this time it is not about quarterly numbers or deal wins.
As per the domestic brokerage house Motilal Oswal, the tech sector may be standing right in front of a major shift, one driven by the next phase of artificial intelligence (AI) spending. After years of companies pouring money into chips, hardware and cloud capacity, the brokerage firm believes the focus may finally move toward building real AI software and services.
If that shift plays out, a few IT stocks could stand at the front of the line. Let’s take a look at what is brokerage say on this and which are the stocks there in its preferred picks.
Motilal Oswal on Tech sector: Where the upgrades are happening
Based on this changing outlook, the brokerage has upgraded four key companies. These include – Infosys, Mphasis, Zensar Technologies and Wipro.
For Infosys, Motilal Oswal says the company’s AI suite, app services work and ongoing demand recovery position it well for a pick-up from late FY27.
The report stated, “Accordingly, we upgrade Infosys to BUY from Neutral.” It added that the company’s earnings for FY27 and FY28 have been raised and that it expects growth to improve in both years.
Mphasis has also been upgraded, driven by improvement in client issues and strong deal wins. The brokerage noted that banking and financial services (BFSI) may support demand during the uncertain period. The report added, “We value the stock at 30x FY28E EPS, arriving at a target price of Rs 4,100.”
Two more changes include an upgrade for Zensar Technologies and a revised rating for Wipro to Neutral.
Motilal Oswal on Tech sector: The stocks to watch in the next AI wave
Motilal Oswal in its report also outlined the firms it believes may benefit more if AI spending enters the application and software phase.
The brokerage noted that its “top picks to play the next AI wave: Hexaware and Coforge in mid-tier and HCL Technologies and Tech Mahindra in large-caps.”
Motilal Oswal on Tech sector: A new turn in the AI cycle?
According to the brokerage report, global spending on AI infrastructure has already created the essential base such as the storage, chips, compute and cloud systems are largely in place.
What remains is the next stage, where companies begin building AI tools, platforms and applications. This, Motilal Oswal believes, is where Indian IT firms can start seeing a shift.
The brokerage report noted, “We have argued earlier that the IT sector’s re-rating depends on a new AI services cycle emerging, and this is largely a waiting game until the AI capex cycle moderates.”
The brokerage added that large language models and AI chips are no longer seeing big jumps in performance, which usually indicates the start of investment in software and services instead of hardware.
It added, “We believe the wait may now be ending.”
Motilal Oswal on Tech sector: Lessons from the last tech shift
To explain this turning point, Motilal Oswal revisits the earlier cloud adoption phase. Back then, spending first went into hardware and infrastructure, and only later shifted towards services such as migration, development and maintenance.
The report further noted, “We expect AI services to reach an inflection point over the next 6–9 months and revenue for the second half of FY27 (Financial Year 2027) and FY28 (Financial Year 2028) to show meaningful acceleration.”
Motilal Oswal on Tech sector: Why valuations matter now
Motilal Oswal also highlighted an interesting disconnect in the market. The share of IT companies in the Nifty index’s profits has held steady at 15% for four years. But their weight in the index has dropped to 10%. This is nearly half of the 19% peak seen in December 2021.
The report noted, “This presents an enticing opportunity: our analysis suggests outsized gains if this plays out, whereas the current levels already bake in the status quo (GenAI-led deflation, demand apathy).”
Moreover, the brokerage has rolled forward its estimates to FY28 earnings and raised target valuations for multiple IT stocks.