What do HCLTech’s Q2FY27 numbers tell us about enterprise AI adoption?

Noida-headquartered HCLTech , which reported revenue of $3.7 billion in Q2FY27, up 2.6% year-on-year in constant currency, saw its advanced AI revenue surge to $219 million during the quarter from over $100 million a year ago. The company’s annualised advanced AI revenue now stands at $876 million. Its services business grew 3% sequentially, adding more than $100 million in incremental revenue. Roughly half of this, or $50 million, came from advanced AI, with the remaining $50 million contributed by its core business. The company said it gained market share while addressing AI-led deflation. CEO and MD C. Vijayakumar aims to replicate the quarter’s performance going forward.

“As clearly visible from our numbers, we are able to clearly and very effectively offset the AI-related deflation and grow our market share in existing services. In addition to that, our new offerings in advanced AI are helping us capture a share of the ever-growing spend in the tech ecosystem,” Vijayakumar said during the press conference. For the company, advanced AI revenue includes those from technologies such as agentic AI, physical AI, AI engineering, AI factory but excluding classical AI, data and analytics services, and the services delivered using GenAI and agentic AI.

Enterprise AI adoption and higher margin business

As companies look plough back gains from operational efficiencies into expanding their AI capabilities, HCLTech reiterated that enterprises are prioritising spending on AI, data, and operating model transformation, where they see upfront gains in efficiency, innovation and business resilience. Legacy and product modernisation are also emerging as important growth drivers. “Physical AI continues to deliver encouraging revenue growth across robotics, IoT, and edge AI, building our engineering and building on our engineering and operational technologies heritage. We're also continuing to find strong traction with our semiconductor propositions,” Vijayakumar told analysts during the call.

Also, HCL Tech significantly improved its margins on the back of AI. The Q2FY27 EBIT margins at 18.2%, a 1.3% improvement over the previous quarter, was aided by both, AI driven efficiencies giving a 73-basis points cushion, and advanced AI offerings brining superior margins and a 32-basis point tailwind. “We offset effectively the AI-related deflation, grow wallet share and market share in the core services, and add a top-up to all of that by delivering strong growth in the advanced AI services,” the CEO added.

This trend concurs with what peers are also witnessing in the market. For instance, recently during its Q2FY27 earnings Tata Consultancy Services , which hit $3.1 billion AI revenues (annualised) said the said portion of the revenue was coming in at a much higher margin than our company average.

With enterprises interested in leveraging AI for a business outcome on technology modernisation, TCS believes the segment of AI demand will hold up and grow in areas such as AI-native solutions with business outcomes, AI-led transformation of enterprise systems, autonomous GBS, and use of AI in technology modernisation, over modernising data estate. For TCS, which saw AI revenue grow by 19% during the quarter, CEO and MD K. Krithivasan calls, “AI as a net new driver of new opportunities”, with AI becoming pervasive in enterprise transformation deals.

That said, HCL Tech still is cautious to call out higher margins in AI business a secular trend just yet. While the company believes that AI will deliver a much higher margin than the traditional business, “Logically advanced AI should give us higher margins than our existing business. But we also are very conscious that this business is in its early nascent phase. It's still a sub-billion-dollar business,” Vijayakumar said. He also added that the primary focus is on maintaining edge and differentiation and growing this business fast.

The role of frontier model partnerships in AI

As IT services and consulting firms forge partnerships with hyperscalers, frontier AI model companies and hardware providers to deploy AI across enterprises, the importance of these alliances is becoming increasingly evident. For HCLTech, partnerships with frontier AI companies are playing a vital role in deploying AI across existing accounts and winning new clients. For instance, its partnership with OpenAI, announced in June last year and since elevated to advanced partner status, helped HCLTech secure a deal with a US-based healthcare provider to deploy ChatGPT Enterprise and establish a governed AI operating model. The initiative aims to enhance employee productivity while maintaining enterprise-grade security, risk management and compliance.

The company has also announced a global premier partnership with Anthropic to accelerate enterprise adoption of agentic AI with a focus on safety, cyber security and governance along with establishing a. dedicated anthropic business unit and a centre of excellence to accelerate deployments of cloud in enterprise environments. While not just mining existing clients, “Any new client that we're winning, they're all having a significant AI component, whether it is service transformation or legacy modernisation, all of that. And for that, we use the right set of tools, where some of these partnerships are very helpful,” Vijayakumar added.

Even as companies strategies on beating AI deflation, HCL Tech is looking at a template wants to address the deflation head-on and grow market share in core services while adding new service lines such as AI factory, physical AI, agentic AI bringing incremental growth.

Analysts take on HCL Tech Q2 results

On the back of strong results, shares of HCL Tech on the BSE saw gains of over 7%, with brokerage firms expecting the company to outperform in growth compared to its peers. Nomura raised its FY27-28F EPS estimates by 2-3% while maintaining a ‘Buy’ rating. Systematix Institutional Equities in its note said, “We continue to expect HCL Tech to deliver above-industry growth in FY27E and FY28E, underpinned by strong bookings, improving traction in large accounts, continued investment and its long- term AI ambitions. These include building full-stack AI services and taking a minority stake in Sarvam AI.”

With other brokerage firms such as ICICI securities and JM Financial maintain a ‘reduce’ on the stock. JM Financial in its note said that while it expect overall revenue growth to be lower than the mid-point (JMFe 3% cc QoQ in FY27), despite services growth better than the mid-point (JMFe: 3.8% cc QoQ in FY27) given softness in HCLT Software, valuation premium is pricing in the positives.