Tech slows down under cloud cover

Slowing revenue growth of cloud services offered by Amazon, Microsoft and Google during last week's quarterly results underscores a technology slowdown in the US. This comes as companies try to trim costs as they continue to move work out of their own data centres. Cloud platforms see this as a dip, rather than a secular decline. Businesses globally still spend an overwhelming share of their technology budgets on-site. Market leader Amazon expects a further slide in revenue growth, as it helps clients to overcome the sticker shock of moving to the cloud. Microsoft and Google, which are snapping at the heels of Amazon Web Services, are trying to optimise offerings through AI tools and services to developers and companies. The platforms are yet to begin monetising AI, but it offers a pathway for restoring growth in cloud services.

Migration to the cloud is a key revenue driver for Indian technology services providers that delivered muted revenue guidance with their quarterly results. Indian IT majors are also affected by disorderly withdrawal of liquidity in financial markets in the US and EU, a vital business vertical. This is a transient phenomenon as credit markets in advanced economies readjust after a blistering run-up in interest rates. Generative AI, however, poses a bigger challenge to business models built on wage arbitrage. AI is expected to affect legacy services, in which Indian IT has a comparative advantage, more than application services.

Although this scenario is some way off, Indian tech majors are already seeing some evidence of this in lower workforce attrition rates. Generative AI is likely to increase consolidation with bigger firms retraining their employees quicker to operate in the new environment. They will also have the early-mover advantage in incorporating AI into their service delivery and redeploying manpower to services that rely on human interface. Indian IT service providers have displayed great adaptability before, and should be able to negotiate yet another business cycle and technology frontier.