Deven Choksey Research has stamped a BUY rating on Tata Consultancy Services Ltd, setting a target price of Rs 2,525 against a current market price of Rs 2,080 — implying a 21% upside for investors willing to ride out a margin trough. Authored by analyst Neel Mehta, the note argues that India's IT bellwether is quietly rewiring itself around artificial intelligence, with annualized AI services revenue crossing USD 2.6 billion and a fresh mega-deal pipeline underscoring durable demand. Margins dipped in the June quarter on salary hikes, but the brokerage sees a clear runway back toward 25%-plus profitability by fiscal year-end.

The AI Engine Is Firing

TCS's transformation story now has hard numbers behind it. Annualized AI services revenue jumped 13.6% quarter-on-quarter to USD 2.6 billion, roughly 8.5% of total revenue. The headline deal of the quarter was a USD 800 million mega-contract with Swedish industrial giant SKF, the sixth such mega-deal in five quarters — each one built on the same template of AI-driven operational efficiency layered with broader business transformation. Partnerships with Anthropic and Mistral are positioning TCS closer to the foundational "model layer" of enterprise AI, while contracts are increasingly shifting toward outcome-based pricing rather than the old time-and-materials model.

Margins Bottomed Out, Recovery Ahead

Investors spooked by the quarter's profitability numbers may be missing the bigger picture, the report suggests. Operating margin slipped to 24.0% in the first quarter, down from 25.3% in the prior quarter, as the full brunt of an approximately 170-basis-point annual salary increment hit the books in one shot. Employee costs consumed 58.3% of revenue. Management, however, has reiterated its target of exiting the fiscal year above a 25% operating margin, a trajectory consistent with TCS's historical pattern of second-half recovery through cost discipline and workforce optimization. Free cash flow remains a bright spot, with 93% of profit after tax converting to operating cash flow, and capital expenditure has settled back to maintenance levels.

Sector-by-Sector: Where the Growth Is Hiding

The report paints a mixed but improving sectoral canvas. Banking, financial services and insurance — the company's largest vertical at 32.1% of revenue — grew 1.6% in constant currency, while the technology vertical advanced 1.7%. Management has explicitly guided that Life Sciences and Manufacturing, both soft in recent quarters, should turn the corner starting in the September quarter as pent-up technology backlogs finally convert into billed work. The lone laggard remains Consumer Business, down 4.0%, weighed down by weakness in North American airlines and non-essential retail — a drag the brokerage links to prolonged tariff uncertainty rather than a structural problem.

Hiring Turns Positive After Five Quarters of Cuts

In a signal that management itself flagged as evidence of returning confidence, headcount rose by 9,279 in the quarter to 593,798 employees — the first net addition in five quarters. The company onboarded 14,000 campus graduates and continues to prioritize lateral hires with next-generation AI skills; more than half of new lateral hires already carry those credentials. A backlog of USD 9.5 billion in total contract value signed during the quarter gives the brokerage confidence in forward revenue visibility.

The Numbers That Matter

Valuation: Where the Rs 2,525 Target Comes From

Deven Choksey Research is projecting a 4.3% revenue compound annual growth rate between FY26 and FY28, a modest pace that nonetheless leaves the stock trading at a discount of roughly 13 times FY28 earnings. The brokerage's target price applies a 16x FY28E multiple, translating into the Rs 2,525 level and the stated 21% upside. The house frames the current price as a trough-level entry point, with the AI revenue base expected to nearly double from USD 2.6 billion toward USD 5 billion over the next six to eight quarters, a shift management believes could justify further multiple expansion as the earnings trajectory re-rates.

The Risks Investors Should Weigh

The note is careful to flag caution points alongside its bullish thesis. AI-linked revenue remains lumpy and project-based rather than annuity-like — incremental additions slowed to USD 75 million in the latest quarter from USD 125 million previously — and productivity gains passed through to clients of 10% to 15% could compress topline growth if not offset by expanded scope of work. The Consumer Business recovery hinges on an improvement in geopolitical sentiment and a thaw in tariff-driven caution. Rising SG&A spending, up 16% year-on-year on AI investment, could also push out the timeline for margin recovery. Finally, any appreciation of the rupee would erode the roughly 11% currency tailwind that has flattered reported growth figures.

Bottom Line for Investors

At Rs 2,080, with a stated target of Rs 2,525, Deven Choksey Research is telling investors the risk-reward now favors accumulation — a stock priced for pessimism on margins, but backed by a rebuilding sectoral base, a hiring inflection, and an AI order book that management insists is only getting started.