IT firms with lower capital requirements may gain as investors shift focus to AI monetisation: Report

Information technology (IT) companies capable of monetising enterprise adoption of artificial intelligence (AI) without making substantial capital investments could gain an advantage as investors increasingly differentiate between businesses funding AI infrastructure and those generating returns from its adoption, according to a report by Anand Rathi.

The report said the key risk to the AI opportunity is not weakening demand but the widening gap between infrastructure commitments and proven monetisation.

This is expected to make funding discipline, cash conversion and returns on invested capital increasingly important factors in determining which companies benefit from the technology's expansion.


"We believe the key risk is not weakening AI demand, but the widening gap between infrastructure commitments and proven monetisation, making funding discipline, cash conversion & returns on invested capital increasingly critical differentiators," the report said.

It highlighted that companies positioned to benefit from enterprise AI adoption could have an advantage over those committing significant capital to build AI infrastructure.

As enterprises move beyond experimentation, opportunities are emerging in areas such as modernisation, data integration, cybersecurity, agent governance and AI-enabled business operations.

The report noted that these opportunities would require domain expertise and execution capabilities, with the ability to convert AI adoption into sustainable business outcomes becoming increasingly important.

"We therefore expect AI to expand the addressable services opportunity, but believe monetisation, pricing discipline and the ability to retain productivity benefits will determine which vendors benefit," it said.

However, the report cautioned that emerging AI-related opportunities have not yet fully offset weakness in traditional discretionary technology spending.

While the financial services sector remains relatively resilient, a broader recovery in IT spending is still dependent on an improvement in enterprise budgets.

The report also shared that AI-led modernisation & operating transformation are creating incremental opportunities; these have yet to fully offset weakness in traditional discretionary spending.

Anand Rathi's investment view is centred on selectively identifying companies that can translate enterprise AI adoption into sustainable earnings and cash flows, rather than expecting a broad-based recovery across the IT sector.

"Our Safe AI thesis rests on selective ownership of businesses capable of translating enterprise AI adoption into durable earnings and cash flows, rather than betting on an indiscriminate sector-wide growth recovery," the report said.

The report further said investors could increasingly distinguish between companies financing the AI infrastructure buildout and those positioned to capture the benefits of enterprise adoption with substantially lower capital requirements.

This could make the ability to generate returns from AI services, maintain pricing discipline and retain productivity gains more important for IT companies than the scale of their AI-related investments alone.