HCL Technologies Ltd. demonstrated a more robust performance than its larger peer, Tata Consultancy Services Ltd. (TCS), during the September quarter (Q2 FY27). HCL Tech surpassed TCS in key financial metrics, including overall revenue growth, net profit increase, and margin expansion, according to recent earnings reports.
Q2 FY27 Financial Performance Highlights
HCL Tech's revenue from operations saw an 11.52 percent year-on-year (YoY) increase, reaching Rs 35,620 crore. This marginally outpaced TCS, which reported an 11.22 percent growth in revenue, totaling Rs 73,188 crore for the quarter.
In terms of profitability, HCL Tech's net profit surged by 21 percent YoY to Rs 5,132 crore. TCS, while also reporting strong growth, saw its net profit rise by 14.86 percent to Rs 13,934 crore.
Margin expansion was another area where HCL Tech showcased stronger performance, with its sequential margin growing by 131 basis points to 18.2 percent. This expansion was attributed to AI-led efficiencies and a richer mix of advanced AI services. In contrast, TCS experienced a flatter sequential margin at 24 percent.
The AI Race: Revenue and Strategic Focus
Both IT powerhouses are actively vying for market share in the rapidly evolving artificial intelligence (AI) sector, with significant contributions from AI services to their respective revenues.
- HCL Tech's Advanced AI Revenue: The company's advanced AI revenue climbed by 28.4 percent quarter-on-quarter (QoQ) to $219 million in constant currency terms. This segment now constitutes 6 percent of HCL Tech's total revenue and remarkably, 50 percent of its incremental revenue, positioning it as a key growth driver.
- TCS's AI Revenue: TCS reported an annualized AI revenue of $3.1 billion, marking a 19 percent QoQ increase. AI services currently account for 10 percent of TCS's total revenue, demonstrating a significant overall contribution.
Analysts from BOB Capital Markets noted that while HCL Tech's advanced AI revenue growth is strong, its share in overall revenue is lower than TCS. However, they highlighted that half of HCL Tech's $100 million QoQ incremental revenue originated from Advanced AI services, indicating its growing importance.
Management Commentary and AI Strategy
TCS's AI Vision
TCS management indicated a shift in AI demand, moving beyond initial experimentation towards tangible AI-led technology modernization, enterprise transformation, and agentic AI. The company observes strong traction in agent control planes and is actively evaluating various Large Language Models (LLMs), Small Language Models (SLMs), and open-weight models based on client requirements. TCS also sees opportunities in managing associated governance and token costs, as stated by Nirmal Bang Institutional Equities.
HCL Tech's Aggressive AI Expansion
HCL Tech's management affirmed that the company is gaining market share in AI services, acknowledging the industry's early phase of AI-led deflation. The company secured its two largest Advanced AI deals in Q2 through single-sourced engagements, primarily leveraging its strong partner relationships. Many large deals now specifically incorporate the 'AI Force' platform.
HCL Tech has also forged several strategic partnerships to bolster its AI capabilities and market reach:
- A global premier partnership with Anthropic to accelerate enterprise adoption of agentic AI, focusing on safety, cybersecurity, and governance. This includes establishing a dedicated Anthropic business unit and center of excellence.
- Achieved OpenAI Advanced Partner status and joined its cyber defense initiative.
- Jointly developed AI Factory deployment and validation capabilities with NVIDIA.
- Announced a family of Gemini Enterprise offerings and a joint transformation program with Google Cloud.
- Scaled enterprise AI solutions with ServiceNow.
- Signed a partnership with Cohere, targeting Canada and Germany.
Nirmal Bang analysts suggested that AI-led productivity gains and deflation might increasingly offset incremental AI-led spending, potentially impacting large-cap players with extensive legacy service bases more significantly.