TCS’s AI Bet Pays Off With $1.8 Billion in Annualised AI Revenue in Q3

Tata Consultancy Services turned months of AI talk into hard metrics in the third quarter of FY26, showing that the company’s aggressive pivot toward AI is now starting to move the topline, the order book, and even margins in the right direction.

For the quarter ended December 31, 2025, TCS reported revenue of ₹67,087 crore, up 2% sequentially, or 0.8% in constant currency terms. The IT giant earned a net income of ₹13,438 crore, up 8.5% year-on-year, with net margins improving to 20%—a 40-basis-point gain over the previous quarter. 

Profit after tax has declined 14% YoY to ₹10,657 crore.

Operating margin held steady at 25.2%, an important signal at a time when the company is spending heavily on AI platforms, talent, and data centre infrastructure.

The standout number, however, was AI’s contributions to the topline.

TCS said its annualised AI services revenue has now reached $1.8 billion, up 17.3% quarter-on-quarter in constant currency terms. In the previous quarter, the company had disclosed $1.5 billion in AI revenue. 

AI is Working for TCS

The jump confirms that what management had described as a fast-moving AI pipeline is now converting into billable business.

K Krithivasan, chief executive and managing director, framed the quarter as proof that the AI-first reset is working.

“The growth momentum we witnessed in Q2FY26 continued in Q3FY26. We remain steadfast in our ambition to become the world’s largest AI-led technology services company, guided by a comprehensive five-pillar strategy. Our AI services now generate $1.8 billion in annualised revenue, reflecting the significant value we provide to clients through targeted investments across the entire AI stack, from Infrastructure to Intelligence,” he noted in the financial statement.

Over the past few months, TCS has been pushing AI across verticals, from infrastructure and model integration to domain-specific agents and autonomous service delivery. Nearly all developers working with the firm now use AI tools, and thousands of projects are already being delivered with some level of autonomy. 

The order book offers another hint at the growing AI momentum. TCS signed $9.3 billion worth of contracts during the quarter, one of its strongest performances in recent periods. This comes after months of concern over the pipeline of large deals drying up. 

With large enterprises now moving from AI experiments to scaled deployments, TCS is positioning itself as the integrator that can bring models, data, security, and industry processes together inside real production systems.

Aarthi Subramanian, president and chief operating officer, said client behaviour is shifting in exactly that direction. 

“We continued to see AI acceleration this quarter. We helped customers identify valuable AI opportunities through Innovation Days and deployed solutions faster with Rapid Builds. Our customers continue to invest in Cloud, Data, Cyber and Enterprise Transformations to build readiness for AI. We further strengthened our Salesforce capabilities with Coastal Cloud acquisition, building on our investment in ListEngage,” she said in the earnings statement.

What Else Happened?

During the quarter, TCS acquired the US-based consultancy firm Coastal Cloud in a $700-million acquisition aimed at boosting TCS’ capabilities in Salesforce-driven enterprise transformations. 

At the same time, the company is using formats like Innovation Days and Rapid Builds to push clients from ideas to working AI systems faster, a key part of its effort to move beyond pilots into real revenue.

Explaining the financial discipline behind the strategy, CFO Samir Seksaria pointed to strong cash generation and stable margins even as the company steps up investment. 

“Backed by a robust balance sheet, we continue to invest confidently in strategic growth areas. Executing our five-pillar AI strategy at speed and scale is central to our transformation into an AI-first enterprise, and delivering long-term value for our stakeholders,” he said in the statement.

Cash flow from operations was 130.4% of net income in Q3, giving TCS room to fund its multibillion-dollar data centre plan without stretching the balance sheet. 

Those data centres, which will provide long-term capacity for AI workloads and sovereign cloud projects, are designed to create annuity-style revenue streams rather than one-off project fees. 

While they will not contribute much to revenue immediately, they anchor TCS’ ambition to become a full-stack AI services and infrastructure provider.

The workforce is being reshaped just as aggressively. Sudeep Kunnumal, TCS’ chief HR officer, said the company now has more than 2,17,000 associates with advanced AI skills, a sharp increase over the past year. Despite this, the company ended the December quarter with 5,82,163 employees, down 11,151 from the previous quarter.

“We doubled our intake of fresh graduates with higher-order skills, rapidly expanding our next-generation talent pool,” he noted.

Overall, over 37% of TCS’ workforce is trained in advanced AI skills. This matters because one of the biggest questions around AI in IT services is whether automation will eat into billing by replacing human effort. TCS is betting that by training a large base of AI-fluent engineers and consultants, it can sell higher-value, more autonomous services rather than simply fewer people.

TCS’ stock was up 1.1% on the NSE, with shares trading at Rs 3,240 apiece.

Put together, the Q3 results suggest that TCS’ reinvention is no longer just a story told on analyst days. AI revenue is rising faster than the core business. Deal flow is picking up. Margins are holding. Cash is being generated to fund the next phase, which includes massive data centre investments and deeper partnerships with AI model providers and hyperscalers.

The real test will be whether this momentum carries into the next few quarters as global clients move more workloads into AI-driven systems.

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