Infosys, TechM, TCS, other IT stocks plunge up to 5%, extend losses as global AI trade rebounds. What lies ahead?

Shares of Indian IT companies, including Infosys, Tech Mahindra and TCS, plunged on Wednesday, leading market losses as optimism around the global AI trade revived following strong earnings from SK Hynix, building on momentum from Anthropic’s IPO.

The Nifty IT plunged more than 3% to lead losses among the sectoral indices. This comes as South Korea’s Kospi, which is seen as the face of the massive seesaw trade linked to artificial intelligence, soared 6%.

Why IT stocks are falling today?

SK Hynix shares surged more than 8% after the memory chipmaker reported a more than seven-fold increase in quarterly profit and announced plans to return about $75 billion to shareholders. The chipmaker also forecast robust demand, supported by investment in AI infrastructure that has driven up memory chip prices.

The optimism rubbed off on peer Samsung Electronics, another major beneficiary of the AI-driven semiconductor boom, whose shares advanced nearly 9% to help lift the broader market.

Also read | Global Market: South Korean shares surge 6% as SK Hynix earnings fuel AI chip rally

Anthropic IPO

Wall Street also jumped on Tuesday as investors regained enthusiasm for artificial intelligence-linked stocks. This was triggered by Anthropic, the maker of Claude, filing for an IPO. The eventual listing would give public-market investors an opportunity to invest in one of the leading developers of AI models.

Notably, it was Anthropic’s launch of new plug-ins for Claude that had sparked a sharp rout in India’s IT stocks earlier this year. As hyperscalers continued to increase spending on the nascent technology, doomsday prophets began to sound the alarm for Indian IT companies, believing that the new innovations could lead to displacement in the sector. "We call it the ‘SaaSpocalypse,’ an apocalypse for software-as-a-service stocks," Bloomberg quoted Jeffrey Favuzza from the equity trading desk at Jefferies as saying.

Also read | Anthropic's record IPO faces some big questions

The stocks then recovered some losses as analysts began to question the massive spendings behind AI, screaming bubble like situations. Experts highlighted that India’s IT sector enjoys what they called an ‘anti-AI’ advantage. But the renewed optimism in the AI trade has now dampened sentiment for India’s IT stocks.

However, analysts remain cautious about the AI trade. Michael Burry, the investor who famously bet against the US housing market before the 2008 financial crisis, has warned of a potential market crash if the AI boom fizzles out. In such a scenario, Indian IT services firms could emerge among the key beneficiaries.

Also read | AI bubble to burst sooner than expected? Michael Burry believes it would take only one season of revenue disappointment

IT stocks tumble

Mphasis and Infosys shares plunged 5% each, while Tech Mahindra, Coforge, Tata Consultancy Services (TCS) and HCL Technologies shares dropped around 3% each.

Persistent Systems, LTI Mindtree, Wipro and OFSS shares meanwhile dropped 1% each.

Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.