Infosys, TCS better equipped to weather ChatGPT-led disruption: JP Morgan

Generative artificial intelligence models such as ChatGPT, JP Morgan said, can potentially simplify coding and democratize access to a wider pool of talent, driving a new source of disruption

Infosys and Tata Consultancy Services (TCS) are likely to weather the disruption caused by ChatGPT – a chatbot developed by OpenAI – better than peers, suggested analysts at JP Morgan in a recent report.

Generative artificial intelligence (AI) models such as ChatGPT, analysts at JP Morgan said, can potentially simplify coding and democratize access to a wider pool of talent, driving a new source of disruption. This, they said, can have a combination of headwinds and tailwinds for IT services firms.

Some key positives, JP Morgan believes, include a boost to productivity, widened employability, lower costs and creating a new area for change management projects for IT services firms. Challenges, on the other hand, are likely to come from a fresh new deflationary driver in managed services projects, and the need for retraining staff made redundant.

"Any tech change likely favours consulting heritage firms and digital native firms over tech heritage firms such as Indian Techs in the short term. Firms with stronger graduate training infra such as Infosys and TCS are likely to weather this better. Over time, this could be a source of disruption, similar to an early stage of digital transformation (DX) over 2015-2019, that slows down share gains and deflates pricing before Indian techs reorient themselves," wrote Ankur Rudra and Bhavik Mehta of JP Morgan in a February 10 note.

Productivity boost

Generative AI (AI that can be used to create new text, images, video, audio, code or synthetic data), Rudra and Mehta said, can be a productivity booster (such as libraries, tools and dev resources and simplify low end code), bringing down costs that can be retained by vendors early in the cycle with less mature clients.

This, they said, can also eventually create a new area of work for firms in implementing this tech on enterprise technology stacks. Companies, they said, have already experimented with OpenAI and GPT3 over the past year and several service providers are already working on projects involving ChatGPT / GPT3.

"ChatGPT is likely to deflate legacy services the most and application services the least. Consulting heritage firms like Accenture and Deloitte and digital native firms are likely to gain share over Indian techs in the near-term with such changes. Among Indian techs, those with stronger graduate hiring and training infrastructure such as Infosys and TCS are likely to retrain staff faster than smaller peers," the JP Morgan note said.

As regards markets, AI could be useful in automating data processing, said analysts at Rabobank International in a recent note.

"Where an AI won’t apparently help you is in managing money. However, if you read sell- and buy-side financial research, a worryingly high percentage could arguably already be done better by an AI," they said in a recent note.