HCL Tech's gains from Sarvam AI bet hinge on execution and scale-up

Brokerages see strategic benefits from HCL Tech's investment in Sarvam, though long-term returns will depend on the AI firm's ability to scale and execute effectively

The stock of the third-largest listed information technology (IT) company by market capitalisation, HCL Technologies (HCLTech), rose about 3.7 per cent in trade and was the top gainer in the BSE Sensex as well as the Nifty50 on Tuesday. The gains for the IT major came after it announced an investment of $150 million (₹1,427 crore) for a 10.46 per cent stake in Sarvam AI, a Bengaluru-based artificial intelligence (AI) company. In addition to this, attractive valuations (down 11 per cent in the last three months and 33 per cent over the past six months) too led to the rally in the stock. Brokerages have a mixed view on the deal.

 

The near-term trigger for the IT major is the investment in Sarvam. The Indian AI company raised $234 million from HCLTech as well as a clutch of other investors, taking its valuation after the deal to $1.5 billion. The investment, according to HCLTech, will fund Sarvam’s ongoing research and development (R&D) for training its models for agentic AI, coding, and cybersecurity use cases. The investment will help HCLTech to develop industry- and client-specific language models and AI solutions for its global client base, and offer differentiated enterprise AI solutions across industries.

 

The financial impact, according to Morgan Stanley Research, will be limited given the minority stake, though HCLTech will have the strategic advantage of tapping the sovereign AI theme for global governments and regulated enterprises. The brokerage, which has a “Neutral” rating with a target price of ₹1,410, also pointed out execution risks and the low success ratio of early-stage AI ventures.

 

Nomura Research pointed out that this is the first-of-its-kind investment by any Indian IT services company in a sovereign AI company. HCLTech’s enterprise transformation expertise and global client relationships will aid Sarvam in building a powerful, end-to-end sovereign AI ecosystem for India and beyond, the brokerage said. Abhishek Bhandari and Karan Nain of the brokerage have a “Buy” rating on the stock with a target price of ₹1,600.

 

An analyst at a foreign brokerage believes that positive returns from the investment depends on whether Sarvam is able to scale up at least in the India market, and some smaller markets globally. Regulated sectors are key globally as Sarvam focuses on banking, insurance, government technology, and defence.

 

While the scope for scaling up in India is good, competition in the global market is severe, and global giants are flush with cash. Given that the cost of computing is very high, and unless the AI company is well-funded, it will be difficult to compete at the global level, the analyst said. The downside of any arrangement with Sarvam is the fact that it may impact any future tieup of HCLTech with global AI majors, he added.

 

After the fourth quarter of 2025-26 (Q4FY26), some brokerages had downgraded the stock as revenues came at the lower end of the guidance due to cuts in telecom discretionary spend, and SAP program cancellations. Of the analysts tracking the stock, about 68 per cent have a “Hold” or “Sell” rating on the stock. Moreover, despite the weak Q4FY26 and guidance, the stock trades at a premium to TCS and Infosys on FY27 earnings estimates.