HCLTech enters data centres with a full-stack AI bet, contrasting TCS's infrastructure play. Shares fell 4% after weak guidance. The ₹3,500 crore investment targets sovereign AI services.
HCL Technologies Ltd is entering the data-centre business, betting on a full-stack AI strategy that spans infrastructure, compute and applications. The move makes it the second Indian IT services company after Tata Consultancy Services Ltd to build its own data centres. The two are pursuing different models.
TCS committed $6.5 billion over six years to build 1GW of capacity, targeting large hyperscalers such as Google, Microsoft and AWS. HCLTech plans to invest about ₹3,500 crore ($365 million) for up to 50MW of capacity. The goal is controlling more of the AI value chain rather than just hosting workloads.
"Our whole value is in delivering full-stack AI services, which means it's data centre, it's the GPUs, it's the models, it's the applications that we will deliver on top of it," said C Vijayakumar, chief executive of HCLTech, during the company's post-earnings press conference.
Investors remain focused on near-term growth. HCLTech's shares fell over 4% on Tuesday, a day after the company reported revenue of $3.65 billion for the June quarter, down 0.9% sequentially. The company guided for constant-currency revenue growth of 1-4% for the full year, its weakest July guidance in four years.
"It's a significant difference between the two," said Ashutosh Sharma, vice-president at Forrester Research. "TCS offering is aimed at large hyperscalers and they offer infrastructure services such as land, power, cooling facilities, compute and network services. HCL is focusing on offering a full stack of sovereign AI services up from the underlying datacenter."
HCLTech last month became the country's first IT services company to acquire a stake in an AI startup, buying 10% of Bengaluru-based Sarvam AI for about $150 million. Sarvam develops AI models in Indian languages.
The companies are targeting different AI workloads. TCS is working with large AI companies and selling compute power through the likes of OpenAI, which is more capex-intensive. HCLTech is focused on handling customer work through small language models that require less compute power and are more cost-effective for specific client needs, said Sushovon Nayak, lead IT analyst at Anand Rathi Institutional Equities.
Broadly, data-centre providers follow one of two models. One rents out physical infrastructure while customers deploy their own servers or use cloud services from hyperscalers. The other combines infrastructure with AI compute capabilities, the model HCLTech is pursuing.
India's data-centre market is expanding rapidly. The country is expected to have about 7GW of capacity by 2030. Conglomerates including Reliance Industries Ltd, Adani Enterprises Ltd and Hiranandani Group, along with companies such as Airtel and Uber, have entered the sector.
HCLTech's move comes as AI reshapes the economics of traditional IT services. The company has outgrown TCS over the past three years and was the fastest-growing among India's top five IT firms last fiscal year, even as management warned AI is already causing pricing deflation of up to 3% in parts of its business.
"We believe HCLT is investing ahead of the market to build the next-generation AI stack," Motilal Oswal Financial Services analysts Abhishek Pathak and Keval Bhagat said in a note dated 13 July.
Like TCS, HCLTech does not expect to fund the investment on its own. Management said on Monday it was exploring financing through silicon companies, OEM vendors, and a mix of debt and equity.
Bank of Baroda Capital Markets said the strategy could also help HCLTech control AI costs as clients increasingly seek outcome-based pricing.
"The AI data centre and AI model related investment indicates a desire to control the cost of compute and of 'intelligence' as clients become more price sensitive and want to sign output-based agreements with their vendors," said analysts Girish Pai and Lopa Notaria in a note dated 14 July.
Nirmal Bang Institutional Equities analysts Shubham Dalia and Suket Kothari said in a note dated 14 July that HCLTech has called out revenue deflation with an overall 2-3% impact on its portfolio due to AI-related deflation, setting a negative outlook for the next few years.
HCLTech's MSFT stock page shows an Alpha Score of 60/100, labeled Moderate, with the stock currently at $390.99, up 1.53% today.
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