Artificial Intelligence (AI), hailed as the most transformative technology of the century, could also become the greatest disruptor for the global IT services industry. A Jefferies report has warned that revenues in the IT services sector may plunge by 20% between 2025 and 2030, as enterprises increasingly adopt AI-driven productivity tools that cut the need for traditional outsourcing.
The report predicts that while AI will unlock major productivity gains, the shift may slow IT services growth to just 1.5%–3% CAGR between 2024 and 2029 — a dramatic fall compared to the double-digit expansion the sector once enjoyed.
Which IT Services Will Be Hit Hardest?
According to Jefferies, not all IT segments will face equal disruption. The most significant impact will be seen in:
Application Services – Automation of coding, software management, and upgrades could shrink demand for human-driven application development.
BPO (Business Process Outsourcing) – AI chatbots, process automation, and generative AI agents are set to replace traditional outsourcing models, hitting revenues of BPO firms hardest.
Consulting & Infrastructure Services – While still affected, these will face a less severe slowdown as businesses continue to need strategic advice and physical infrastructure support.
Jefferies estimates AI can deliver productivity gains of 5% to 35% across consulting, application services, infrastructure, and BPO. But the paradox is clear: greater productivity for clients means fewer billable hours for IT companies.
Three Major Reasons Behind the AI-Driven Slowdown
The report outlines three key factors fueling the projected decline:
Ban on New IT Spending
Enterprises are holding back investments, fearing that any technology bought today may quickly become obsolete as AI evolves at lightning speed.Revenue Decline from Productivity Gains
As AI automates tasks, IT services firms will see a direct reduction in revenues. Clients can achieve more with less, cutting outsourcing contracts by up to 20%.Incomplete Returns on Past Investments
Between 2021 and 2024, global enterprises poured nearly $280 billion annually into new technology — more than double the $130 billion average of 2016–2020. Yet, many companies still haven’t fully realized the benefits of these investments, creating reluctance for fresh spending.
Why FY27 Could Be the Breaking Point
The Jefferies report suggests the sharpest revenue impact will be visible around FY27, before new AI-related opportunities begin to generate growth.
Short-Term Pain, Long-Term Gain?
The industry is bracing for revenue contraction in the near term, but AI-driven opportunities like custom AI solutions, enterprise-grade large language models, and AI security could pick up pace in later years.Mid-Sized IT Companies at Greater Risk
Interestingly, mid-sized IT firms may face greater disruption than larger players, as their revenue mix is more dependent on segments like BPO and application management. However, Jefferies also notes that these firms could outperform in growth if they pivot quickly and capture market share in new AI-driven areas.
Non-AI IT Services: A Slow Climb
While AI-centric services may cannibalize traditional outsourcing, non-AI-related IT services are projected to grow just 1% to 3% annually. This muted growth means the overall IT industry will continue expanding, but nowhere near the speed witnessed in the last two decades.
The Global IT Industry at a Crossroads
The report paints a picture of an industry at a turning point:
Yesterday’s Boom: For over two decades, IT services firms in India and globally rode a wave of double-digit growth, powered by globalization, outsourcing, and digital transformation.
Today’s Reality: AI is now rewriting the rules, replacing people with machines and redefining client expectations.
Tomorrow’s Uncertainty: If IT companies fail to reinvent themselves with AI-powered services, the slowdown could worsen beyond the projected 20% decline.
Industry Reaction
While the Jefferies report has sent shockwaves through the IT community, some analysts remain optimistic.
Opportunity in Disguise: Experts argue that AI disruption, while painful, may force IT firms to innovate faster. “Just like cloud migration reshaped the industry a decade ago, AI could open new revenue streams — but only for those ready to adapt,” one industry veteran noted.
Client-First Transformation: Enterprises increasingly demand end-to-end AI integration — from customer support chatbots to predictive analytics — and IT companies that specialize in these solutions could see outsized gains.
Key Takeaways
Global IT services revenues may fall 20% between 2025–2030 due to AI-driven automation.
Application Services & BPO face the most severe disruption.
Mid-size IT companies are at higher risk but could pivot faster than large players.
FY27 may see the sharpest slowdown, before AI-fueled growth kicks in.
IT services growth could fall to just 1.5%–3% CAGR during 2024–2029.
Conclusion
AI is both a threat and an opportunity. The Jefferies report serves as a wake-up call for IT service providers worldwide: adapt or risk decline. Firms that can transform into AI-first companies, offering advanced solutions beyond cost-cutting, may not just survive but thrive in the new AI economy.
Until then, the industry must brace itself — because the AI shockwave has already begun.
