Artificial intelligence is considered as the next big technology revolution in the world. From chip manufacturing companies to data centers and companies developing AI models, huge investments were made in this hope. But now questions are being raised on this speed. Investors are worried whether the massive spending on AI will yield future gains that the market expects.

Its impact is visible in the technology markets of the world. South Korea’s stock market saw chip companies’ shares fall sharply, while IT companies’ shares rose in India. According to an ET report, during this boom, the total market capitalization of Indian IT companies was around Rs. 26,000 crore was up and the Nifty IT index was up nearly 3%.

Now the question is why the slowdown in AI growth is considered good news for India? Is the global technology business trend changing? And will Indian IT companies be able to take advantage of this change? Let’s understand in simple language.

Why did the development of AI companies suddenly stop?

The growing popularity of AI has taken the business of semiconductor or chip manufacturing companies to new heights. Training AI models, running data centers, and processing large amounts of data requires extremely powerful chips and memory. South Korean companies such as Samsung Electronics and SK Hynix benefited from this demand. But now two major concerns are emerging in the market.

First concern: Competition from China is increasing. Technological advances at Chinese chip maker Chengxin Memory Technologies (CXMT) have attracted investor attention. There are fears that Chinese companies may strengthen their position in the memory chip market. This may put pressure on the future earnings of existing giants.
Another concern: Calculating Costs and Profits on AI. Tech companies are spending huge sums of money on AI chips, data centers and increasing computing capacity. But there is growing uncertainty about what the actual returns from these investments will be and how soon they will be realized.

Amid these worries, South Korea’s KOSPI index fell 7.4% to 5,914.35 on October 13. Shares of Samsung Electronics fell 7.7% and SK Hynix fell 8.8%. This decline shows that investors are becoming more cautious than ever about the future prospects of the AI business.

Why did Broadcom’s CEO compare AI investment to a casino?

One of the key reasons for questioning the AI business was a comment by Hock Tan, CEO of chip maker Broadcom. He warned that raising money to build AI infrastructure could be a bigger challenge in the future than chip shortages.

He said that some investors are investing money in companies with high expectations, when they do not fully understand the business they are investing in. He compared the situation to that of a casino, where risk and expectations can exceed reality.

This does not mean that the future of AI is over. The real question is what is the difference between AI’s earnings potential and the companies’ current valuations.

For example, a company buys thousands of crores of servers and chips for AI. If this does not significantly increase its productivity and earnings, it may take longer to recover the cost of its investment. This risk is now troubling investors.

Why did Indian IT stocks rise?

While pressure on chip companies increased, shares of Indian IT companies rose at the same time. According to the report, the Nifty IT index rose around 3% and shares of HCL Technology and TCS saw gains of up to 5%. The total market value of Indian IT companies is around Rs. 26,000 crore has increased.

Because of this difference, some investors may find Indian IT companies a different investment option than AI hardware. However, Indian IT companies are not completely immune to AI. If AI tools automate more software development and other services, it could affect companies’ billing, staffing needs and traditional business models.

What can India benefit from this change?

The biggest opportunity for India is that global companies can focus on reducing costs, increasing productivity and implementing technological changes by spending on AI. Indian IT service companies can play a significant role in meeting these needs.

First advantage: Demand for AI implementation. Companies will not only need to purchase AI models, but they will also need to integrate AI into their legacy systems, organize data, strengthen security, and prepare employees for new technology. Indian IT companies can find opportunities in these services.

Another benefit: Digital Transformation. Companies in sectors like banking, retail, healthcare, manufacturing and telecom will need experts to incorporate AI and automation into their business.

Third advantage: Costs and Productivity. If Indian IT companies are able to provide better services in less time using AI, their productivity and competitiveness can increase.

But these are possibilities, not guarantees. The actual benefit will depend on how much additional revenue AI is able to generate and how fast customer revenue grows.

Is global tech trade shifting in favor of India?

This question is important, but the answer is not yet completely clear. South Korea’s stock market is heavily influenced by the performance of chip and memory companies. At the same time, India’s listed IT sector is mainly concerned with software services and technology consulting. Therefore, the same global event can have a different impact on both markets. India’s chances of benefiting can be strengthened in three scenarios:

Global companies should continue to spend on AI, but focus on hardware as well as software and implementation services.
Indian IT companies can gain new customers and additional revenue with AI based services.
The benefit of cost reductions due to AI should be reflected not only in stock market expectations but in companies’ profits.

Conversely, the Indian IT sector may also come under pressure if companies cut their IT budgets or AI reduces demand for traditional software services.

What should investors be aware of?

Given the current stir regarding AI, investors should not make decisions based on a single day’s rise or fall of stocks. It will be useful to monitor some important indicators.

Earnings of Companies: Is AI really increasing revenue and profits?
Evaluation: Is the share price commensurate with the company’s future earnings prospects?
Order Book and Client Expenses: Are global companies increasing or decreasing spending on IT services?
Competition from AI: Are new technologies making companies’ operations more profitable or putting pressure on their traditional businesses?
Chip Market Status: How does Chinese competition and changes in spending on AI infrastructure affect semiconductor companies?

These indicators can help to understand whether the current bullishness is just a result of market sentiment or a real improvement in the business of the companies.

Investors’ priorities may change

It would be premature to consider the current upheaval in AI as the end of a technology revolution. The world has possibilities for using AI, but investors now want to know when and how much profit companies spending on this technology will make. A decline in South Korean chip companies and a rise in Indian IT stocks may signal that the market is starting to differentiate between different parts of the AI business. There is an opportunity for India to convert demand for AI-related software services, consulting and digital transformation into business. The bottom line is that while the world may continue to spend on AI, not every AI company or every technology stock will necessarily benefit from it equally. This is certainly an opportunity for India, but to convert it into sustainable growth, real earnings, productivity and consumer demand will need to come together.