AI, automation may cut 30% of tech services revenue, says Bain report

A Bain & Co report warns the global tech services industry could lose up to 30% of revenue as growth slows, margins shrink and AI-driven disruption accelerates, pushing firms to overhaul operations

The global technology services industry faces a sharp slowdown and risks losing nearly a third of its revenue if it continues operating as it does today, according to a new Bain & Company report.

 

After years of steady expansion, sector growth has slipped to 2–3 per cent, down from 4–5 per cent before the pandemic. Margins have fallen by more than 200 basis points and valuations have retreated to pre-Covid levels, according to the report titled 'The New Growth Equation for Tech Services'.

 

The report argues that as automation and artificial intelligence (AI) replace traditional works, up to 30 per cent of revenue could disappear.

 

Firms may also lose 5–7 percentage points of earnings before interest and taxes (EBIT) margin as competitive discounting increases, potentially wiping out 45–50 per cent of enterprise value over the next five years, the report added.

 

What's causing the distruption?

While AI is the most visible disruptor, the report states that broader forces like economic nationalism, aging population and the energy transition are also forcing change across the industry.

 

"Together, these factors are reshaping how tech services providers operate, deliver value and compete," the report said.

 

It added that although these factors are driving disruption, they are also opening up new opportunities. The report suggests that integration of AI into existing workflows will generate fresh demand for modernisation, data transformation, and industry-specific solutions.

 

Legacy systems are also becoming easier to update with AI tools, creating new avenues in banking and other sectors. AI’s shift to the edge and the surge in demand for application-specific chips will also expand work in chip design, validation, and data centre infrastructure, the report said. 

 

The report suggests that the next generation of tech service leaders could grow at 8 to 10 per cent and increase revenue multiples by up to 3.5 times, if they move early. They will need to deploy AI not only in client solutions but also across their own operations.

 

Adopting a zero based approach that rebuilds internal processes with AI at the centre could help technology services firms lift their margins by 200 to 300 basis points, the report said.

 

“AI and other structural shifts are redrawing the industry’s growth map. The next wave of winners will be those that reimagine strategy using a micro-battle approach, leverage AI to transform processes and move to platform-based value-driven delivery. They are the ones that lead the way in revamping their talent and culture models to fully capture the value of this change," said Kaushal Raja, partner at Bain & Co.