Infosys, Wipro, TCS and other IT stocks rise up to 3% amid US AI rout; is the bubble bursting?

Synopsis

In the wake of a worldwide AI stock decline, companies such as Infosys and TCS have seen their shares rise, demonstrating a contrasting trend. This downturn has sparked fears of impending regulations within the sector, prompting analysts to predict that Indian IT companies might leverage this moment to enhance their entrepreneurial AI ventures, all while experts caution against excessive financial commitments in the AI landscape.

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The shares of Indian IT companies, including Infosys, Tata Consultancy Services (TCS), Wipro and others, rose up to 3% on Friday despite the global AI selloff intensified sharply, with Wall Street seeing its worst crash since 2020, boosting sentiment for the Indian IT stocks, which are seen to have the so-called ‘anti-AI’ advantage.

In today's session, Infosys gained over 2%, while India's biggest IT company, TCS, rose 3% to Rs 2,565 per share. Wipro, HCL Tech, Coforge, and Persistent Systems gained up to 2% after the opening bell.

Artificial intelligence-linked stocks plunged on fears of tougher AI regulation after Democrats won ‌control of the US Congress, defeating President Donald Trump’s Republican Party in the midterm elections. Democrats’ victory sparked concerns that tighter regulation could slow the AI infrastructure buildout that has helped lift stocks to record highs this year.

Nasdaq fell 6%, marking its worst drop since the infamous Covid-19 crash in March 2020. The tech-heavy index also entered a technical ‘correction’ territory, a 10% drop from ⁠its October 6 record-high close.

Nvidia shares plunged more than 9%, while the Philadelphia SE Semiconductor index crashed over 12%. The selloff wiped off $3 trillion in stock market value from S&P 500 companies. South Korea’s Kospi, which was seen as the face of the sharp volatility around the AI frenzy, also felt the pain, crashing more than 9% to trigger a circuit breaker.

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"Investors appear to be recognizing that some newly elected members of Congress and governors are looking to slow the pace of AI infrastructure development," Reuters quoted Melissa Brown, global head of investment decision research at SimCorp.

"While it seems unlikely that they will be able to stop it altogether, any slowdown would raise concerns because the AI growth story has largely depended on the rapid buildout of supporting infrastructure,” she said.

Why Indian IT stocks stand to benefit

Earlier this year, when Anthropic’s launch of new plugins for Claude triggered sharp hopes for artificial intelligence, India’s much-touted IT services companies saw a massive rout in their share prices as analysts worried that 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.

However, as the AI frenzy began to fizzle out, analysts were quick to point out India’s so-called ‘anti-AI’ advantage. This has been boosting a recovery in these stocks while experts scream about a bubble-burst crisis ahead amid the massive spending behind AI infrastructure. Michael Burry, popular for correctly predicting the 2008 housing crisis, has been ramping up his warnings over the excessive optimism regarding AI. Recently, he said that the market is currently in a 'denial' mood, a phase that could last six to nine months as seen during the previous 2000 and 2008 crises.

Amid the growing concerns over the excessive frenzy around artificial intelligence, valuation expert Ashwath Damodaran said in a recent podcast that the AI bubble is coming and there is no way one can avoid it completely.

These rising worries around the AI bubble will likely be a positive for Indian IT companies. Veteran banker Uday Kotak expects India to benefit from the reverse flows as the AI frenzy fizzles out, while working down the path of building its own AI capabilities. This comes as worries around excessive spending by hyperscalers on artificial intelligence grow louder, with several analysts warning of a bubble-burst situation ahead.

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(You can now subscribe to our ETMarkets WhatsApp channel)

(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today.

Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

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