• Death and Recognition: Lou Gerstner died at age 83 after being celebrated for rescuing IBM from decline.
• First Outsider CEO: Gerstner was the first non-IBM executive to lead the company, taking the helm in 1993.
• Culture and Mission Shift: He reoriented IBM’s culture and mission toward business services instead of competing with Microsoft on operating systems.
• Workforce Reduction: As part of the turnaround, he laid off roughly 10% of employees, challenging IBM’s lifetime-tenure tradition.
• Financial Turnaround: Under Gerstner’s nine-year leadership, IBM’s share price rose from about $13 to roughly $80, supporting many jobs.
• Post-IBM Career: After IBM, he worked in private equity and chaired the Carlyle Group from 2003 to 2008.
• Philanthropic Efforts: Gerstner Philanthropies invested over $300 million in biomedical research, education, and humanitarian causes.
• Policy Note: The White House considered acquiring a 10% stake in an unnamed chip maker after Trump’s confrontation with Intel CEO Lip-Bu Tan, raising questions about MAGA corporate statism.

By

The Editorial Board

Dec. 29, 2025 5:52 pm ET

29

BPC > Only use to renew if text is incomplete or updated: | archive.ph

BPC > Full article text fetched from (no need to report issue for external site): | archive.today | archive.md

Louis V. Gerstner Jr. in 1993. Stringer ./Reuters

Starting a business is hard, but harder still is reviving a once-great company that has fallen from its glory days. You have to change the culture in addition to finding a new business mission. That was the great achievement of Louis V. Gerstner Jr., who revived IBM in the 1990s and died Saturday at age 83.

Lou Gerstner was the first outsider to take the helm at IBM, the storied firm that once looked so dominant in computer mainframes that the Justice Department spent foolish years trying to break it up. But like many former giants, IBM lost its leadership to upstarts as the personal computer and software eras surpassed mainframes.

Taking over at IBM in 1993 after stints at RJR Nabisco and American Express, Gerstner pivoted the company from hardware to focus on business services. He stopped trying to compete with Microsoft’s Windows operating system and instead offered customers expertise in how to integrate corporate data and networks. He laid off some 10% of the company’s employees, which was a shock to the IBM tradition of lifetime tenure but underscored the necessity of change for company survival.

The strategic shift worked, and IBM revenues boomed. During his nine years as CEO, IBM’s market value rose from about $13 to $80 or so a share. The turnaround saved tens of thousands of jobs and provided comfortable livelihoods and retirements for countless families.

Gerstner worked in private equity after he left IBM, serving as chairman of the Carlyle Group from 2003-2008. He was a notable philanthropist with a special passion for education, as he showed in op-eds promoting reform in our pages over the years. Gerstner Philanthropies has invested more than $300 million in biomedical research, education and humanitarian causes.

Business management has fallen out of media and popular favor as entrepreneurs became the glory boys of American capitalism. But CEOs with vision and courage are crucial to making companies succeed. This is the reason that shareholders and boards are willing to pay good managers well. Lou Gerstner was one of the best, to the great benefit of hundreds of thousands of Americans.

The White House considers taking a 10% stake in the chip maker, after Donald Trump meets with Intel CEO Lip-Bu Tan, shortly after he demanded Tan's immediate resignation. Is this another example of MAGA corporate statism?

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Videos

• Deal Overview: Nvidia is paying $20 billion for a nonexclusive Groq inference-chip license, with about $13 billion already wired and the remainder to arrive later, including stock packages for employees joining Nvidia.
• Strategic Implication: The licensing agreement gives Nvidia access to Groq’s specialized inference technology and blocks a GPU alternative from becoming a serious competitor.
• Relationship Timing: Groq founder Jonathan Ross and Nvidia CEO Jensen Huang grew closer over recent months, including meetings at the U.S.–Saudi Investment Forum before the Christmas Eve announcement.
• Founder Gains: Ross owns roughly 10% of Groq, a stake worth $2 billion based on the deal value, and received an Nvidia stock package worth several hundred million dollars.
• Investors Positioned: Outside investors such as Disruptive, Chamath Palihapitiya’s Social Capital, BlackRock, and 1789 Capital stand to benefit, with the company planning distributions to investors and employees.
• Revenue Projections: Groq projected $1.4 billion in revenue for 2026, up from $500 million this year and $90 million in 2024, driven largely by sovereign customers like Saudi Arabia’s Aramco.
• Remaining Assets: At least six bids are expected for Groq’s remaining assets, including GroqCloud, with bids predicted to exceed $1 billion; CFO Simon Edwards has been named CEO.
• Contextual Implication: The deal underscores escalating competition for inference talent and technology amid broader tensions in the AI and global trade landscape.

Groq founder Jonathan Ross and Nvidia CEO Jensen Huang, in tie, became closer in recent months. David Paul Morris/Bloomberg; Tom Williams/CQ Roll Call/ZUMA Press

Nvidia’s NVDA -1.21%decrease; red down pointing triangle licensing deal with startup Groq is a sign of growing competition for top talent and technology on the next front of the AI war: inference.

The $20 billion licensing agreement gives Nvidia access to Groq’s specialized inference-chip technology used to run artificial-intelligence applications, and prevents a GPU alternative from becoming a serious competitor.

The deal represents a remarkable turn for the nearly decade-old chip startup. The company at one point nearly ran out of cash and asked staff to trade salaries for equity, its founder, Jonathan Ross, said on the 20VC podcast earlier this year.

It is unclear when the two companies initiated deal talks. Ross and Nvidia Chief Executive Jensen Huang grew closer over the past two months, and spent time together in November at the U.S.–Saudi Investment Forum in Washington, D.C., according to people familiar with the matter, before announcing the deal on Christmas Eve.

Here is what we know about the deal:

What Nvidia is paying Groq

Nvidia is paying $20 billion for a nonexclusive licensing agreement with Groq, according to people familiar with the matter. Of that, about $13 billion has already been wired to the startup, with the remainder set to be sent in the coming months, the people said. The overall deal size includes stock packages for the employees joining Nvidia, one of the people said.

How much Groq’s founder stands to make

Groq founder Ross, who previously worked at Google and helped create its TPU chips, has received an Nvidia stock package worth at least several hundred million dollars, the people said. Ross owns about 10% of Groq—a stake worth $2 billion based on the headline value of the Nvidia deal. Other investors that stand to see significant gains include venture firm Disruptive, the company’s largest outside investor, which led its most recent financing at a $6.9 billion valuation, as well as Chamath Palihapitiya’s Social Capital, BlackRock and Donald Trump Jr.’s 1789 Capital.

More specifics on the deal

There are no performance milestones tied to Nvidia’s licensing payments. The company, which raised billions in venture-capital funding, will make distributions to investors and employees soon.

How much revenue Groq was expected to generate

Groq had been projecting revenue of $1.4 billion in 2026, up from about $500 million this year and about $90 million in 2024, people familiar with its financials said. Its revenue growth was driven largely by sovereign customers, including Saudi Arabia’s Aramco.

What’s next for the remaining portion of Groq

There are expected to be at least six bids for Groq’s remaining assets, including its AI-inference platform, GroqCloud, people familiar with the matter said. Bids for that portion of the company are expected to top $1 billion, one of those people said. Groq Chief Financial Officer Simon Edwards has been named CEO.

Write to Kate Clark at kate.clark@wsj.com

What’s Next for Nvidia

From global trade tensions to AI

Nvidia Licenses Groq’s AI Technology

S&P 500 Hits Record, Nvidia Rising

Trump’s OK of AI Chip Sales in China Called 'Dangerous'

Nvidia Tops List of Best-Managed Companies

• Meta Purchase: Meta Platforms is acquiring Singapore-based AI startup Manus for over $2 billion.
• Manus Capabilities: Manus develops AI agents that produce research reports and build websites using models from Anthropic and Alibaba.
• Integration Plans: Manus services will continue operating and be integrated into Meta’s social-media products while scaling to more businesses.
• Leadership Alignment: Manus CEO Xiao Hong will report to Meta COO Javier Olivan after the acquisition.
• AI Competition: The acquisition positions Meta in the AI agent segment alongside rivals like Google, Microsoft, and OpenAI.
• Manus Growth: Manus has millions of users, crossed $100 million in annual recurring revenue, and raised $75 million in a recent funding round.
• Funding Background: Benchmark led Manus’s funding round, boosting valuation to $500 million, with other investors including HSG, ZhenFund, and Tencent.
• Global Operations: Manus, founded by Butterfly Effect in 2022, moved its headquarters to Singapore after developing outside China with predominantly Chinese researchers.

By

Angel Au-Yeung

,

Raffaele Huang

and

Kate Clark

Updated Dec. 29, 2025 11:31 pm ET

Meta’s Chief Executive Mark Zuckerberg went on a recruiting blitz this year to build an AI dream team. Associated Press

Meta Platforms has agreed to acquire AI startup Manus, a Singapore-based company with Chinese founders that conducts deep research and performs other tasks for paying users.

Meta is closing the deal at more than $2 billion, according to people familiar with the acquisition. Manus was seeking a fresh round of fundraising with a valuation of $2 billion when Meta approached the startup, some of the people said.

Manus’s co-founder and chief executive, Xiao Hong, who often goes by the nickname “Red,” will report to Javier Olivan, chief operating officer of Meta, some of the people said.

The acquisition is among the highest-profile examples of a major U.S. tech company buying an artificial-intelligence product developed in Asia’s AI and startup ecosystem.

Manus gained a wide following after previewing an AI agent in March that was capable of producing detailed research reports and building custom websites, using AI models developed by companies such as Anthropic and China’s Alibaba. That demo followed the release of DeepSeek, a made-in-China AI model that rocked Silicon Valley due to its advanced capabilities, coupled with claims by its developer that it was developed with far less computing power than American rivals.

The deal is a move in a new direction for Meta, which is investing aggressively in AI to compete with Google, Microsoft and OpenAI. The deal would help the social-media giant cement its position in the product segment of AI agents, an increasingly intense battlefield of AI companies that make tools to conduct complex tasks with minimal human input. Microsoft has operated a popular AI assistant, Copilot.

Meta says it plans to continue to operate and sell Manus’s service and integrate it into its suite of social-media products. Meta has previously touted so-called open source models that are largely free to access, modify or distribute.

“We plan to scale this service to many more businesses,” Meta said in its announcement about the deal. 

Meta’s existing AI offerings are widely available free in services including Instagram and WhatsApp, and the company has also fully incorporated AI into its advertising in ways that have fattened its bottom line, according to analysts.

After Meta faced unexpected challenges earlier this year while preparing to roll out a new model, Chief Executive Mark Zuckerberg went on a recruiting blitz to build an AI dream team, offering top executives and researchers multimillion-dollar paydays.

The company acquired a 49% stake in startup Scale AI that valued Scale at $29 billion, and Scale founder Alexandr Wang joined the social-media giant as its chief AI officer.

Manus has garnered millions of users since its spring launch, including some who pay subscriptions to use its models for analysis, coding and other tasks.

In April, Manus raised $75 million in a fundraising round led by venture firm Benchmark. As part of the deal, Benchmark’s general partner Chetan Puttagunta joined the company’s board. After the investment, Manus’s valuation was boosted to $500 million, people familiar with the matter said. It also counts HSG, ZhenFund and Tencent as major investors.

In December, the startup announced it had crossed $100 million in annual recurring revenue, eight months after it launched. Around the same time, Meta started negotiating with the company for the acquisition, some of the people said.

“Joining Meta allows us to build on a stronger, more sustainable foundation without changing how Manus works or how decisions are made,” Xiao said in an announcement Monday. Xiao is one of two Chinese co-founders of the company.

The parent company behind Manus, Butterfly Effect, was founded in 2022 and had offices in Beijing and Wuhan. In October 2024, the company started developing Manus. Although most of its researchers and engineers were based in China, Manus was launched outside the country as it used many American AI models that aren’t available in China.

After securing investment from Benchmark, the company officially moved its headquarters to Singapore. U.S. lawmakers have criticized Benchmark for backing an AI company with ties to China. Manus has also shelved its plan to develop a version for the Chinese market, people familiar with the matter said.

Manus has around 100 employees, mainly in Singapore.

Write to Angel Au-Yeung at angel.au-yeung@wsj.com, Raffaele Huang at raffaele.huang@wsj.com and Kate Clark at kate.clark@wsj.com

The Global AI Race

Coverage of advancements in artificial intelligence, selected by the editors

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If U.S.-China AI Rivalry Were Football, the Score Would Be 24-18

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AI Hackers Are Coming Dangerously Close to Beating Humans

Copyright ©2025 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the December 30, 2025, print edition as 'Meta Buys Singapore AI Startup Manus'.

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Videos

• Viral investigation: Nick Shirley’s video exposing alleged fraud at state-funded daycare centers gained 115 million views and prompted a gubernatorial response.
• Healthcare waste focus: The commentary shifts to Medicaid spending, portrayed as an even larger example of government waste, especially in blue states with expanded coverage backed by federal subsidies.
• Costly transportation example: An email describes a refugee child’s round-trip taxi to Boston’s Shriners Children’s Hospital costing $2,116.74, allegedly paid from hospital funds likely tied to taxpayer dollars.
• Unanswered questions: The author questions the necessity of out-of-state care costing $2,100 for transportation and who ultimately funds it.
• Taxpayer burden: Medicaid costs are attributed to local, state, and federal taxpayers, with spending described as “skyrocketing unstoppably.”
• Spending growth data: New York’s Medicaid budget rose from about $10 billion in 1988 to $120 billion today despite modest population growth, representing roughly four times the per-person spending after inflation.
• Federal backstop effect: Recent spending acceleration is linked to Democratic politicians relying on increasing federal support, with a warning that nationwide matching New York levels would cost $2 trillion without better outcomes.
• Systemic warning: The argument concludes that distorted financial incentives risk federal insolvency and deteriorating care, symbolized by “$2,100 cab rides” paving the road to hell.

(A belated Merry Christmas, Happy Hanukkah, and thanks for giving me last week off.)

You’ve seen the video.

Nick Shirley, a citizen journalist (aka a journalist), traveled around Minnesota looking for fraud at state-funded daycare centers largely run by Somali immigrants. He found obvious evidence of malfeasance — and a worldwide audience on X.

Shirley’s 42-minute video has now been viewed 115 million times, even forcing a huffy response from Governor Tim Walz (last seen exaggerating his military service).

Shirley deserves the attention. But when it comes to waste, fraud, and abuse in government programs, nothing holds a candle to health-care spending. Especially in blue states. And especially since the Affordable Care Act and then Covid-era federal subsidies allowed expanded Medicaid coverage with an endless federal backstop.

—

(I don’t have a federal backstop. I have you. Support my work, for pennies a day.)

—

And most especially in New York. A few weeks ago I received an email with the subject line, “Healthcare and the $2,100 Taxi Ride.” The email began:

I have a friend who drives a taxi in XXX NY. He estimates that 80% of the cab fares are paid for by Medicaid…

Yesterday, he made a round tripper from XXX to Boston where a child had a 2 hour appointment at Boston’s Shriners [Children’s] Hospital. The fare? $1,058.37 - EACH way. $2,116.74 in total.

It appears this was not a direct pay/bill to Medicaid, but a hospital pay from a fund they have for such “needs”. I think we can safely assume these funds are either backed by state of federal dollars at the end of the day. His take? 37% - $783.

Attached to the email was a photo of the fare. The unusual name on it matches the unusual name of a child from a refugee family who was publicly reported injured in an odd accident.

—

[

](https://substackcdn.com/image/fetch/$s_!BqqA!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F53bb98e9-8718-440a-b408-59c6fbc7f179_1290x976.jpeg)

—

The city where the child lives has several hospitals.

What exactly is this hospital in a different state providing — especially when getting to an appointment and back requires a full day in the back of a taxi?

How much is all of this care costing, if a single appointment costs $2,100 — the cost of a round-trip business-class cross-country plane ticket — for transportation alone (before whatever markup the hospital is adding)?

And who is paying for all this care for a penniless refugee family from one of the poorest countries in the world?

The first two questions have no answer.

The third does, however. Local (in New York, counties and the City of New York contribute to Medicaid), state, and most of all federal taxpayers. And the spending is skyrocketing unstoppably.

Year after year, conservative think-tanks and sometimes even non-partisan good government groups write papers about how out-of-control New York’s Medicaid program has become. Year after year, Republican lawmakers at the state and federal level complain. Sometimes state and federal prosecutors even attack particularly egregious fraud.

But nothing ever changes, except the numbers get larger.

In 1988, New York had about 18 million people and spent about $10 billion on Medicaid. Today, the state has about 20 million people — and spends about $120 billion. Even with inflation adjustments, New York is spending about four times as much per-person.

In fact, after a period of somewhat slower growth in the 2000s, spending has recently accelerated again — mainly because the state’s Democratic politicians have realized that the federal government will backstop more and more spending.

—

[

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—

I expect to have more to say about New York’s Medicaid program in future articles, because it is impossible to unravel the crisis in American medicine from the crisis in American medical spending, and the honeypot New York has created captures the essence of the problem.

If every state spent at the same level as New York, the United States would spend about $2 trillion on Medicaid alone - yet there is no evidence that patients in New York are healthier or receive better care than those in states that spend far less.

—

(Support my reporting. The taxes you save may be your own.)

—

I am more convinced than ever that the system’s out-of-control financial incentives aren’t just putting the entire federal government on a fast track to financial ruin, they are leading to worse care for many, many Americans.

The road to hell is paved with $2,100 cab rides.

• Christmas timing: Deal news surfaced on December 24 with speculation that NVIDIA timed the announcement to coincide with the holiday season.
• Deal structure: NVIDIA is paying Groq about $20 billion for a non-exclusive inference technology licensing agreement rather than a traditional acquisition.
• Hackquisition framing: The structure is likened to other Big Tech “hackquisitions,” where companies secure talent and assets without formal purchase.
• Strategic talent targets: Key Groq figures Jonathan Ross and Sunny Madra apparently motivated the agreement, with Ross credited as the TPU creator.
• TPU rivalry: NVIDIA’s move is interpreted as a response to Google’s TPU success and broader efficiency narratives threatening NVIDIA’s GPU dominance.
• IP leverage: NVIDIA likely values Groq’s technology license to integrate its techniques into future chips despite the “non-exclusive” label.
• Regulatory concern: A full acquisition would likely face antitrust resistance due to NVIDIA’s >90% AI chip market share, so the licensing deal may circumvent scrutiny.
• Industry precedent: The transaction follows a pattern of similar deals by Microsoft, Amazon, Google, Meta, and others seeking talent plus technology access.

Twas the night before Christmas and all through the house, not a creature was stirring, not even a... wait. What's that? Is that Jensen Huang scurrying around doing deals over the holidays?!

It sure is!

Well, presumably he had been working on the deal with the specialized AI chip startup Groq before the holidays started. But I also wouldn't rule out that this deal came together in a hurry given what we know about how he's operated in the past with some mega deals, such as the um, (up to) $100B investment in OpenAI. A deal which came together quickly, perhaps on a trip with a certain President, and perhaps right after the rumors of OpenAI potentially looking at a deal with Google to use their TPUs – we'll come back to that. It was also a deal which was announced three months ago but apparently still has not been finalized, by the way, so there's that.

Anyway, you can't help but wonder if the real key for the timing here may have been to bury it under the spirit of Christmas. Because boy is it a doozy.

CNBC first broke the news with the headline: "Nvidia buying AI chip startup Groq for about $20 billion in its largest acquisition on record". But as it turns out, that wasn't quite right. And actually, it was NVIDIA that wanted to make that clear. They weren't buying Groq, they were merely paying Groq that $20B for a "non-exclusive licensing agreement".

Oh, you've heard that terminology before? Of course you have. It's the magical incantation one must cite in order to summon the spirits of the "hackquisition".

With this deal, NVIDIA is following their Big Tech brethren down this now well-trodden path. Microsoft, Amazon, Google, Meta, and NVIDIA have done deals which aren't technically acquisitions, but effectively are. Because they allow the acquiring – sorry, non-acquiring – company to sort of pick and choose what they want from the acquired – sorry, non-acquired – company in exchange for considerations that can go to... well, sort of anyone they choose. Certainly the investors to get them to sign off on such deals, and often the key employees at those companies. Sometimes the other employees of the companies too, but that's mainly so they don't feel bad and/or raise a stink about the faux-deal. Because when they do that, all hell tends to break loose, at least from a PR-perspective.

Anyway, the first wave of "hackquisitions" were almost more like "hackquihires" because they were simply a way to get access to key talent at those companies and any licensing agreements were seemingly an excuse to make it all a little less blatant. But as such deals have grown in size, they've grown to look even more like actual acquisitions. For example, Meta's nearly-$15B deal with Scale.ai bought them 49% of that company alongside their key talent, namely CEO Alexandr Wang. Why? Presumably Meta wanted more for that amount of money and they thought Scale, a hot company at the time, might still give them some upside. Of course, they were also effectively gutting said company and it seems decidedly less hot now – especially since many of their customers were Meta competitors who no longer wanted to send their data to Scale – shocking, I know. Still, Meta also likely believed they could use Scale's service to help with their future model training – efforts which were rebooting alongside bringing Wang on board.

NVIDIA's Groq deal seemingly has similarities. Namely, the key was clearly to bring CEO Jonathan Ross on board. And every story also points to company president Sunny Madra being crucial as well. But beyond that, it sounds like NVIDIA may actually care about some of the IP rights here (which they're presumably getting a license to with their "non-exclusive licensing agreement"), to be able to leverage Groq's techniques in would-be future chips.

In that way, "non-exclusive" feels less important here – that's another framing to make it seem less like an acquisition, but is anyone else really getting access to this IP now? Regardless, NVIDIA probably feels confident that with Ross and Madra – not to mention their own in-house prowess – they'll be able to implement it and execute upon it far better than anyone else. And they're undoubtedly not wrong.

And that points to another layer to this as well. Ross is not just a co-founder of Groq, he's also the creator of the TPU – something which he cites in his own bio. You may recall the TPU was last a part of a major news cycle when Jensen Huang was "delighted" about Google's success with their AI chips. How do I know that NVIDIA is actually not so "delighted" about Google's success here and is in fact sweating the rise of the TPU? Well, this deal, for one!

NVIDIA is paying $20B to grab some talent and license some tech. Twenty billion dollars. It's one of the largest deals of any sort in the history of deals. And they're technically acquiring nothing.

Granted, Groq's technology and first batch of chips have been divisive in the industry. Some seem certain they're the future of inference, others aren't sure they're the future of anything. Maybe NVIDIA is fully bought in on the former, or maybe they simply want access to key talent that created the TPU – and, importantly, to keep them away from anyone else who might try to make their own XPUs.

Many are trying, of course. But only Google has really found some level of success thus far. But that level of success has seen them not only train their own state-of-the-art models to rival any of those trained on NVIDIA chips, but also now growing talk about how much more efficient the TPU is versus the GPU. In an era of growing energy fears, this is... potentially a real problem for NVIDIA. To the point where they probably need to have their own TPU-like option – even if they remain fully committed to their GPUs as being the bigger and better option.

Certainly they need to counter this narrative on the inference side. And again, that's where Groq was focused. Maybe their chips were legit, maybe they weren't, or maybe they weren't yet, but even $20B is a relatively small price to pay to effectively lock this team and tech up. NVIDIA made $32B in profit last quarter. This potentially helps them protect those profits.

Speaking of... one can't help but wonder if this isn't the "hackquisition" that breaks the regulators' back, as it were. They've looked into these deals before and largely haven't pursued them. But this is a situation where a "regular" acquisition between NVIDIA and Groq almost certainly would have been blocked simply because NVIDIA controls over 90% of the AI chip market.

So what will regulators do here? Certainly it seems smart of Jensen to try this under the current administration versus any other. It's a group that keeps trying to help him out with China – for a fee, naturally – even if China continues to be a problem on their end.

Regardless – and this remains a key to these "hackqusitions" – NVIDIA will get access to Groq and their team fast with this structure. Will anyone even remember the $20B deal after the holidays? Nothing like some last-minute Christmas shopping!

👇

Previously, on Spyglass...

[

Hackquisitions & Hackquihires

A look at Meta’s Scale deal in relation to other such deals…

SpyglassM.G. Siegler

](https://spyglass.org/hackquisitions-hackquihires/)

[

An OpenAI Acquisition Turns Into a Google ‘Hackqusition’...

A rough few weeks may signal some real talent trouble for OpenAI – at the worst possible time

SpyglassM.G. Siegler

](https://spyglass.org/openai-windsurf-google/)

[

Behold: the Hackquisition

An acquisition by any other name…

SpyglassM.G. Siegler

](https://spyglass.org/hackquisition/)

• MarketPanic: Generative AI fears drove Indian IT underperformance by over 30% as investors feared automation would make the labor-driven industry obsolete.
• IndustryResponse: Firms cut margins, restructured workforces, built platforms, and pitched integration expertise for legacy SAP, Oracle, Workday, and middleware landscapes.
DeploymentReality: UBS reports under 15% of organizations meaningfully deploying generative AI, while CLSA notes analysts shifting focus back to deal pipelines.
• EnterpriseConstraints: Regulated industries cite governance gaps, high error rates, and “workslop,” leaving AI stuck in boardroom theatre rather than production.
• IndianITOpportunity: Preparatory work—data cleanup, cloud migration, system integration—offers a 2–3 year billable runway before enterprise-wide AI adoption.
• CompanyStrategies: TCS invests in data centers and platforms; HCLTech expands partnerships and acquisitions; Infosys deploys 2,500 genAI projects and Topaz/Cobalt assets; Wipro and Tech Mahindra build vertical and sovereign AI stacks; Persistent and LTIMindtree report productivity gains and learning transfer teams.
• BudgetOutlook: IT budgets have grown ~8% annually for six years, with AI, cybersecurity, and cloud taking larger shares while services shrink from 38% to 25% of enterprise tech spending by 2029.
• ValuationRisk: Nifty IT trades at a slight premium to the broader index and discount to Nasdaq, but a fading AI-led global tech rally could drag the sector despite its narrower defensive case.

For the last two years, generative AI was going to kill Indian IT. The argument seemed almost self-evident — if machines can write code, a $250 billion industry built on getting humans to write it cheaper has nowhere left to go. Investors acted accordingly, and the sector has since underperformed the broader market by 30% or more.

The industry has spent this year pushing back. It cut margins, restructured workforces, built platforms, and told clients that AI has not transformed their enterprises because their enterprises are a 30-year accumulation of SAP, Oracle, Workday and middleware that was never designed to talk to anything. And finally, Indian IT is who you call when systems need to talk to each other.

Despite all the hype, generative AI is moving slowly. Less than 15% of organizations are meaningfully deploying the new technology at their firms, according to investment bank UBS. And the narrative about the Indian IT dying is beginning to recede. Investment group CLSA titled a note this month, “Discussion moving beyond AI,” a sign that the existential panic has subsided enough for analysts to return to debating deal pipelines and vertical demand.

Enterprise AI has underwhelmed, though of course not from lack of enthusiasm or capital. Industry players say the tech remains inadequate for regulated industries where someone has to sign off on the output. They cite “workslop,” weak governance and high error rate as reasons the gap between AI as boardroom theatre and AI as functioning software remains so wide.

In the meantime, the Indian IT companies are reporting gains from the same force that was supposed to disrupt them.

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](https://substackcdn.com/image/fetch/$s_!J4QM!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F32197142-243f-4d2b-b051-d1d6a8f9a740_2916x960.jpeg)

All figures in USD, million

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](https://substackcdn.com/image/fetch/$s_!T7-y!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Ffc552ee4-20a6-4f0b-8a94-f1014b2da12c_2912x954.jpeg)

All figures in USD, million

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](https://substackcdn.com/image/fetch/$s_!ePpJ!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa6bf652b-c865-43b0-80dd-8b41b7466c33_2914x942.jpeg)

All figures in USD, million

Infosys now calls AI-led volume opportunities a bigger tailwind than the deflation threat, a reversal from 2024, and orderbooks held steady in the third quarter even as pricing pressure filtered through renewals. Infosys expects its own orderbook to grow more than 50% this quarter, anchored by an NHS deal worth $1.6 billion over 15 years.

The AI capex cycle has been concentrated among a handful of hyperscalers and labs, while the Fortune 500 is still figuring out what to do with what they have bought. Indian IT is betting that figuring out what to do is billable work. Channel checks suggest a two-to-three year window of preparatory work – data cleanup, cloud migration, system integration – before enterprise-wide AI becomes feasible, and that window is where Indian IT plans to earn its keep.

The IT industry has always been reactive to new technology, late to consulting and early-stage advisory but quick to capture implementation spend once the experiments end and the plumbing needs building. The firms believe AI will follow the same arc: a hype phase they mostly miss, followed by a deployment phase where scale, client relationships and tolerance for unglamorous work become valuable again.

TCS, which cut its headcount by 2%, is spending on the “less fashionable” layers – a 1GW data-centre network in India, an indigenous telecom stack, a sovereign cloud – alongside platforms called WisdomNext and MasterCraft. It acquired Coastal Cloud, a Salesforce advisory firm, for capability it did not want to build from scratch.

HCLTech cut margins by 100 basis points, redirected savings toward specialist hiring, and became one of first large systems integrators to partner with OpenAI. The firm announced this week that it had acquired Jaspersoft for $240 million and Belgium-based Wobby to boost agentic AI capabilities. Coforge said on Friday it had agreed to acquire Encora, which offers AI tools for product, cloud and data engineering, at an enterprise value of $2.35 billion.

Infosys has taken a different route, building an asset library rather than data centres. It runs 2,500 genAI projects, has deployed 300 AI agents in its own operations and claims productivity gains of 5-40% depending on service line. Its AI-suite, Topaz, holds 12,000 assets, 150 pre-trained models and 200 agents for code generation, IT operations and billing; Cobalt holds 35,000 cloud assets and 300 industry blueprints.

Leadership now describes the systems integrator as an “orchestrator” – not building models but making them function inside client businesses, where function means plugging into SAP, Oracle and Salesforce without hallucinating key details. Forward deployed engineers sit inside key accounts to identify use cases and move pilots toward production.

Wipro has built vertical platforms including AutoCortex, WealthAI and PayerAI and signed a sovereign AI deal with Nvidia, though the company faces stiff competition in vendor consolidation where productivity baselines already run at 15% before AI shows up. Tech Mahindra has invested in sovereign LLMs and a one-trillion-parameter domain-specific model, hoping India’s national AI push provides differentiation.

Among smaller IT firms, Persistent is reporting what it claims is early evidence of AI-driven productivity, with revenue growing at double digits while headcount stays flat. LTIMindtree has assembled an AI team of over 1,000 to build what it calls a “learning transfer” model to carry lessons from one deal to the next.

IT budgets have grown about 8% annually for the past five to six years for the industry, and the expectation is that the trend continues, with AI taking a larger share alongside cybersecurity and cloud migration.

Large customers want productivity passed through when they adopt genAI, and vendors concede the hit arrives at renewal rather than all at once, which means revenue growth may not return to mid-to-high single digits until FY28 or FY29. IT services are forecast to shrink from 38% of enterprise tech spending in 2018 to 25% by 2029, even as the absolute market grows to $1.3 trillion.

Valuations have not collapsed: the Nifty IT still trades at over 6% premium to the Nifty versus a 10-year average of 10%, and at an over 15% discount to the Nasdaq, close to historical norms. One risk for 2026 is that if the AI-led global tech rally fades, Indian IT would likely suffer rather than benefit, because relative performance has tracked broader tech sentiment even as the underlying business case has diverged.

The IT companies are not claiming victory. The argument is narrower: that the preparatory work AI requires – data cleanup, integration, compliance, tuning – creates enough billable hours to offset what automation takes away, that the middleman remains necessary for different reasons than before.

The bear case assumed AI would work out of the box, that enterprises would deploy it themselves, that Indian IT would have nothing left to sell. Two years in, AI does not work out of the box, enterprises have found it difficult to deploy it themselves, and the firms that were supposed to be dead are still hiring specialists and winning deals.