The sharp sell-off in US technology stocks has once again raised questions about the outlook for Indian IT companies, which have been under pressure amid concerns over AI-led disruption, slowing growth and uncertain technology spending.
But will a correction in US AI stocks trigger a shift towards traditional IT services companies, or could it create a fresh set of challenges for the sector?
US markets witnessed a broad-based sell-off towards the end of the week as investors dumped technology stocks amid growing concerns over the returns on massive artificial intelligence (AI) investments. The Nasdaq Composite plunged 2.86 percent to 25,437, while the S&P 500 fell 1.82 percent to 7,580. The Dow Jones Industrial Average declined 573 points, or 1.09 percent, to 51,775.
The selling intensified after Amazon disappointed on revenue expectations, while Intel plunged 29 percent following its earnings report and warnings over gross margins. Brent crude also surged to $113 per barrel, adding to concerns over inflation and the broader macroeconomic outlook.
For Indian IT companies, the immediate concern is whether the correction in US technology stocks will affect technology spending by their largest clients. There is also a view that investors could move away from expensive AI stocks and towards traditional IT services companies. However, market experts are not entirely convinced that such a rotation is underway.