Domestic brokerage firm Anand Rathi believes Indian IT companies could emerge as beneficiaries of the rising capital expenditure burden on global technology giants, as investors increasingly favour asset-light businesses with strong free cash flow (FCF) generation. The brokerage sees attractive risk-reward opportunities in Indian IT stocks, with Tech Mahindra, LTIMindtree, and Mphasis among its top picks.
In its latest report, the brokerage said the AI infrastructure buildout was becoming increasingly capital-intensive amid accelerating demand. While concerns initially centred on leveraged AI infrastructure providers such as CoreWeave, with its credit default swap (CDS) spreads rising to around 1,100 basis points against a one-year average of approximately 670 basis points, financial pressures are now becoming relevant for hyperscalers as well.
The brokerage highlighted that Microsoft was the only major hyperscaler to report positive free cash flow in Q3CY26, while its peers continued to face pressure. However, AWS, Azure, and Google Cloud recorded year-on-year growth of around 39%, 48%, and 103%, respectively, with aggregate cloud backlogs exceeding $1.8 trillion.
According to Anand Rathi, this divergence highlights robust AI demand, even as converting growth into sustainable cash returns remains challenging.
Anand Rathi estimates that combined capital expenditure by hyperscalers will approach $730 billion in CY26, representing growth of more than 80% year-on-year, with further increases expected in CY27. The brokerage believes rising financial obligations, dependence on external financing, and concerns over returns on invested capital could make funding discipline increasingly important.