Feb 5 (Reuters) – Rapid advances in artificial intelligence, triggered in part by Anthropic's latest automation push, could structurally erode the IT sector's high-margin application services revenues, creating downside risks to earnings and valuations, analysts warn. Shares in India's software exporters fell 0.7% on Thursday, a day after plunging 6% in their worst session for nearly six years, as AI-driven automation from U.S.-based Anthropic and Palantir fuelled fears of compressed project timelines and disruption to the industry's labour-intensive business model. The weakness has echoed across global IT stocks this week, extending a broader selloff in companies seen as most exposed to potential AI disruption. "There is more pain ahead for Indian IT," Jefferies said, adding that Anthropic's and Palantir's claims highlight how AI could potentially erode application service revenues for IT firms. "With application services accounting for 40–70% of revenues, firms face growth pressures, and consensus growth estimates do not fully reflect this, posing downside risks to valuations." However, some analysts said the sharp selloff may be overdone. JPMorgan said that while concerns around AI disruption were not without merit, it was illogical to extrapolate the launch of some tools to an expectation that companies will replace every layer of mission-critical enterprise software. Domestic brokerage Kotak Institutional Equities described the decline as a case of "plenty of panic over a little flutter". (Reporting by Kashish Tandon and Bharath Rajeswaran in Bengaluru. Writing by Chandini Monnappa. Editing by Mark Potter)
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