AI’s disruption potential is ‘hyped’ and based on faulty narrative

Technology industry is in turmoil globally with Nasdaq being down by around 4.7 per cent in the last one month. Nearer home, Nifty IT index has been down by around 8.5 per cent in the last one week. All frontline IT stocks, including TCS, Infosys, HCLTech and Wipro, among others, have touched multi-year lows with brutal selloff seen in the last five trading sessions. The reason for the fluctuations is the increase in the use of agentic AI, which many believe will replace software and SaaS-based services for enterprises. With panic setting up among investors, apocalyptic scenarios are played out, leading to massive selloff in IT stocks. Apparently, the AI-led services are here to stay. Moreover, it is seen as one of the most transformative technologies in human history.

This implies that many things will change to such a large extent through AI that the old ways are seemingly done with. However, the argument that AI will replace everything, and everyone is a faulty argument. Whenever any new technology arrives, the fear of apocalyptic events playing out soon is a usual occurrence. That AI will replace all IT services companies or kill SaaS subscription is not new. But the reality is quite different.

AI will increase productivity with many tasks getting automated through agentic AI tools. But technology adoption among enterprises is a different ball game altogether. Not even big business with multi-billion-dollar market cap as they operate multiple technology stacks across several technology domains. To manage such complexity, they outsource IT operations to third party vendors like TCS, Infosys, HCLTech, Wipro and others due to the latter’s expertise in managing multiple technology stacks. It is unthinkable that big businesses will just hand over such complex operations to AI agents with the intervention of human beings.

Because the margin of error in their operations is next to zero. Hence, all doomsday predictions about AI replacing everything and everyone must be taken with a pinch of salt. Secondly, assume Indian IT services companies as plumbers. Whether you build a simple home or a large business park; the work of a plumber will always be required. It means software services companies manage the very core of operations for an enterprise. They manage different technology stacks; they manage multiple layers of technology; and they also execute these tasks as per the requirement of that specific enterprise. So, their work is highly customised depending on the business requirement.

Now, is it possible that AI agents will replace all these tasks and no longer require IT firms and SaaS companies? The answer is resounding no. The current state of AI development can’t do this autonomously. Therefore, the fear of extinction of Indian IT firms is highly unrealistic. Markets run on sentiments. The recent selloffs can be seen as more sentiment-driven than fact-based.

Brokerage firm, Investec, has come out with an interesting report after the market rout in which it said AI would complement the growth of Indian IT services companies and not replace them, per se. “IT services firms should benefit from legacy code modernisation, migration of legacy SaaS applications, building AI foundation layers for enterprises, and physical AI, among other opportunities. AI should drive higher business velocity over time,” the report said. Many experts from the world of technology have already termed the whole AI narrative as ‘hyped’. AI will change the world across spectrums, but the disruption is less likely to be apocalyptic as projected.