Macquarie reaffirms 'outperform' rank to TCS; stock hits 52-week high

International brokerage firm Macquarie reaffirmed its ‘outperform’ rating for Tata Consultancy Services (TCS), India’s largest IT services firm, and praised the company’s AI investments and use cases as impressive. The brokerage firm also added TCS to the Macquarie Marquee idea list.

Macquarie raised TCS’s share price target to Rs 5,740 per share, up from the previous Rs 4,522.55.

TCS’s stock price hit a 52-week high of Rs 4,564.75 per share during intra-day trading. The stock closed at Rs 4,522.55, marginally up from Rs 4,489.35 from the previous close.

The Macquarie report on TCS follows a briefing where the brokerage firm observed the company’s AI investments and the use cases it is currently working on.

TCS’s research and development investment, previously at 1-1.2 per cent of its revenue, now exceeds $300 million per year, the report stated.

“TCS demonstrated how it has used AI for software engineering, suggesting that rather than massive productivity improvement, AI can enhance the quality of code. The concept of the cost of quality in software engineering can be effectively addressed by AI,” the report added.

TCS has developed a legacy modernisation framework based on AI. “This reminded us of one of TCS’s earliest projects where they created a compiler to transform code written in one language to another,” said the report.

The report concluded that Macquarie sees AI enabling legacy modernisation with greater accuracy and lower costs, potentially opening up a large market for such modernisation.

“We do not change earnings but see potential for a medium-term demand pickup from a wave of legacy modernisation programs, aided by AI-enabled improvements that can lower costs and risks,” said the report.