Is Artificial Intelligence eating into IT sector?
A look at how AI and geopolitics driven economic uncertainties are shaping the industry.
Tech giant Accenture’s weak sectoral demand outlook sent global IT stocks into a meltdown. The Nifty IT index hit a 52-week low, with many Indian tech stocks touching multi-year lows. The panic selloff of over Rs 1.35 lakh crore, however, was seen as a “correction”.
Besides macroeconomic uncertainties stemming from geopolitical tensions, the IT sector bellwether flagged lukewarm client budgets and weak demand for consulting businesses. In contrast, it noted that companies have continued to generously spend on Artificial Intelligence (AI). These, analysts say, are signs of a structural shift in the sector, not a collapse.
Reports suggest that amid global economic uncertainties companies are prioritising large-scale digital transformation projects while tightening spending on smaller IT initiatives. This trend driving AI adoption is not only likely to beget slower-than expected growth for IT business and its consequent earnings, but also disrupt the job market.
Major tech layoffs made headlines in the past months, including substantial job cuts at Amazon, Oracle and Meta. Other companies that followed suit were Wix, Cisco, LinkedIn, GM, Disney, and Snap. As per the Tech Layoffs Tracker, about 153,000 people have been laid off in 2026 so far against 245,000 layoffs in tech in 2025. Several companies said they are redirecting spending toward accelerating AI adoption.
A report by outplacement firm Challenger, Gray & Christmas suggested that unlike earlier layoffs driven purely due to inflation or economic conditions, the latest layoffs are directly linked to rapid automation. The report said that the IT sector has hit a two-year peak in layoffs. Another 2025 World Economic Forum survey also reported that over 41 percent of companies worldwide are likely to reduce their workforce due to AI in the next five years.
Reports also suggest that routine software engineers and those into operations roles are vulnerable to layoffs, facing diminishing job prospects, but the demand for specialised engineers is growing, along with higher pay.
An analysis by workplace advisory firm Gallup directly linked employability in the tech industry to AI skills. It said those who use AI tools at least once a month have 6 percent chances of layoff, while the risk for employees who rarely use AI rises to 18 percent. The study said that the trend extends to other industries as well, however with lesser intensity.
In an interaction with Bloomberg, Gallup chief scientist Jim Harter also said, “I don’t think that’s the right direction.” He explained that linking performance to AI usage could prompt workers to overuse the tools to rig the evaluation. “The real bottom line is: Are they more productive?” Technology-focused media outlet TechCrunch also noted that the current trend may lead to resentment and systemic instability across the sector.
The AI-driven disruption reshaping long-term expectations for outsourcing and services firms is especially set to impact the Indian tech industry.
Following the IT stock rout, meanwhile, market experts are also warning that the sector may no longer be a long-term investment bet. Analyst Sandeep Sabarwal told ET Now that most tech companies have guided for subdued growth.
Sabarwal said, “There’s no disconnect per se because most of the IT companies have guided for subdued growth except for some of the mid-cap ones which have actually guided much higher.”
Another markets expert Abhishek Bhilwaria, Partner at BhilwariaFinserv, told NDTV, “The sudden drop in Accenture’s bookings highlights a deeper problem for Indian tech companies as global clients pull back on traditional tech spending.”
Global brokerage Citi, meanwhile, has also sounded caution over the Indian IT sector, noting that the Nifty IT index trades around 16 times one-year forward earnings, while Accenture trades at 10 times.