The rally in NASDAQ was fueled by sharp jump in Nvidia that briefly became the world’s most valuable company, surpassing the market value of Microsoft during the month. The company has positioned itself as the dominant provider of chips to support artificial intelligence applications and have made it symbolic of this year’s tech-driven boom in US stocks. Nvidia had reported blockbuster first quarter earnings, with profit and revenue soaring amid surging demand for the company’s chips for AI applications. The company’s profits and revenues jumped by 628% and 268% respectively, compared to the corresponding period in 2023. Nvidia’s net income surged to $14.88 billion in the first quarter, which ended April 28, and it is up more than sevenfold from $2.04 billion a year earlier. Revenue tripled to $26.04 billion from $7.19 billion in the previous year’s quarter.

Worldwide AI Chips Revenue to Grow 33% in 2024: Gartner

Revenue from AI semiconductors globally is expected to total $71 billion in 2024, an increase of 33% from 2023, according to the latest forecast from Gartner, Inc. Generative AI (GenAI) is fueling demand for high-performance AI chips in data centers. In 2024, the value of AI accelerators used in servers, which offload data processing from microprocessors, will total $21 billion, and increase to $33 billion by 2028, Gartner report noted.

Gartner forecasts AI PC shipments will reach 22% of the total PC shipments in 2024, and by the end of 2026, 100% of enterprise PC purchases will be an AI PC. AI PCs include a neural processing unit (NPU) enabling AI PCs to run longer, quieter and cooler and have AI tasks running continually in the background, creating new opportunities for leveraging AI in everyday activities. While AI semiconductor revenue will continue to experience double-digit growth through the forecast period, 2024 will experience the highest growth rate during that period

AI Expansion to Transform India: Spending Expected to Reach $6 Billion by 2027: IDC

According to International Data Corporation (IDC), Artificial Intelligence (AI) and Generative AI (GenAI) adoption in India significantly increased, including software, services, and hardware for AI-centric systems, with spending projected to reach $6 billion by 2027 and a compound annual growth rate (CAGR) of 33.7% for the period 2022-2027. IDC forecasts that worldwide AI spending will exceed $512 billion by 2027, more than double its 2024 market size.

Meanwhile, International Data Corporation's (IDC) Worldwide Semi-annual Services Tracker noted that in 2023, the Indian domestic IT & Business Services market was valued at $14.5 billion and recorded a 6.1% year-over-year (YoY) growth as compared to 7.4% in 2022. The moderation in growth rate is due to Indian enterprises remaining cautious of their IT spending due to volatile macroeconomic conditions.

Of the IT & Business Services market, the IT Services market contributed 78.4% and grew by 6.6% in 2023 compared to the 8.1% growth in 2022. The IT & Business Services market is projected to grow at a CAGR of 7.3% between 2023-2028 and reach US$ 20.7 billion by the end of 2028. IDC classifies the IT & Business Services market into three primary markets: Project-Oriented; Managed Services; and Support Services. For 2023, project-oriented services registered the highest growth rate at 6.8%, followed by managed services at 5.8% and support services at 5.2%, respectively.

India To Remain Fastest-Growing Of The World’s Largest Economies: World Bank

Meanwhile, the World Bank in its latest biannual Global Economic Prospects said that India will remain the fastest-growing of the world’s largest economies, although its pace of expansion is expected to moderate. After a high growth rate in FY2023/24, steady growth of 6.7 percent per year, on average, is projected for the three fiscal years beginning in FY2024/25. Growth is estimated to have picked up to 8.2 percent in fiscal year (FY) 2023/24 (April 2023 to March 2024)—1.9 percentage points higher than estimated in January.

Growth in industrial activity, including manufacturing and construction, was stronger than expected, alongside resilient services activity, which helped offset a slowdown in agricultural production partly caused by monsoons. Growth of domestic demand remained robust, with a surge in investment, including in infrastructure, offsetting a moderation of consumption growth as postpandemic pent-up demand eased.

Meanwhile, the moderation is mainly due to a slowdown in investment from a high base, the Bank stated. However, investment growth is still expected to be stronger than previously envisaged and remain robust over the forecast period, with strong public investment accompanied by private investment. Private consumption growth is expected to benefit from a recovery of agricultural production and declining inflation. Government consumption is projected to grow only slowly, in line with the government’s aim of reducing current expenditure relative to GDP.

Upcoming Budget 2024-25 In Focus

In its pre-budget memorandum 2024-25, Nasscom, which represents the country’s technology industry recommended removing the 2.5 per cent tariff slab to enhance ease of business in the industry. To develop a strong electronics components and sub-assembly ecosystem, the tech industry has demanded fiscal support and streamlining of the input tariffs in the sector from the government which is consulting all the stakeholders before the upcoming Union Budget 2024-25.

Nasscom, which also represents startups, also recommended enabling the direct listing in India of Indian-origin foreign-incorporated firms. An expert committee of market regulator Sebi has recommended that equity shares of companies incorporated outside India should be allowed to be listed on Indian stock exchanges. Its recommendations have not yet been implemented.

A key budget expectation from the technology sector is to see the Rs 1 lakh croredeeptechfund for startups getting in motion Looking at the progress of PLI schemes, the industry is also hoping that the government might want to expand coverage in sectors like consumer electronics, computer and networking, and industrial electronics, among others.

On the cybersecurity front, the Data Security Council of India (DSCI) recommends that the government must move beyond reliance on audits and testing, and towards real-time management of security problems, for which a dedicated budget should be allocated to support or incentivize this shift.

The IT sector is also looking at increasing eligibility thresholds under safe harbour provisions from current levels of up to Rs 200 crore in international transactions to Rs 2,000 crore at least, according to the National Association of Software and Service Companies (Nasscom), which represents India’s $254 billion technology industry.

Outlook:

The NIFTY IT index, which measures the behavior and performance of Indian IT stocks recovered from a six month low in June. Nevertheless, domestic IT firms that generate a substantial portion of their revenues from the United States is awaiting a positive signal from the Fed regarding potential rate cuts that are particularly significant for Indian IT companies. Higher interest rates in the US typically result in reduced consumer spending and lower corporate investment, which in turn leads to decreased orders and lower growth prospects for Indian IT companies.

The Federal Reserve in its annual bank resilience test, commonly referred to as a stress test said that America’s biggest banks are well positioned to survive a severe recession while continuing to lend to households and businesses. However, Fed warned that banks could suffer higher losses, if a significant economic downturn were to hit now versus a year ago.

Meanwhile, Accenture, considered a benchmark for the Indian IT services industry, revised its full-year revenue guidance, narrowing it to a growth range of 1.5 per cent to 2.5 per cent, compared to the previous 1 per cent to 3 per cent. The IT major’s third-quarter (Q3) 2023-24 (FY24) results continued to reflect pressure on discretionary spending, with growth driven by managed services deals. Revenues for Q3FY24 totalled $16.47 billion, down from $16.56 billion in Q3 2022-23 (FY23), marking a 1 per cent decrease. However, generative artificial intelligence (GenAI) portfolio continued to grow, with bookings reaching $900 million for the quarter, contributing to a total of $2 billion in bookings — the largest in the IT services industry.

Table 1. AI Semiconductor Revenue Forecast, Worldwide, 2023-2025 (Millions of U.S. Dollars)

Source: Gartner (May 2024)