TCS is steadying the ship, but the real battle is scaling AI-led non-linearity

Tata Consultancy Services’ (TCS) latest quarterly numbers (Q2 FY25) showcase a company positioning itself to play the challenging, long game and prepare for the AI era. After a few quarters of muted momentum, it appears to be steadying from a temporary wobble. Q2 FY25 marks a period of recalibration and careful long-term bets across tech, trust, and talent dimensions for TCS.

TCS manages to hold margins firm in a soft market

While revenues declined 3% year-over-year in constant currency, TCS reported an impressive operating margin of 24.5%, a hallmark of its razor-sharp focus on execution. The company has reported US$9.4 billion in new deal wins, signaling continued trust from clients. It is evident that while projects are being delayed in harsh macro-economic conditions, they are not being taken off the plate completely. North America and the banking, financial services, and insurance (BFSI) sector remain areas of concern for TCS, but demand stabilization in Europe and the manufacturing sector, along with a relative easing of attrition, have buoyed the company. The ship has been largely steadied for now. For enterprises, this quarter reinforces the focus on delivery continuity and value protection amid uncertainty.

Signs of non-linear growth emerge against the backdrop of a talent reset

TCS’ results also reflect some early signs of breaking from its linear growth model. Revenue per employee rose 7%, and operating profit per employee climbed 13% year-over-year. These are clear indicators that the company is trying to extract more value from its current talent base through the combined impact of workforce optimization, automation, platformization, and increased AI-infused delivery. However, operational efficiency is not enough; enterprises should also demand measurable productivity gains and faster realization of business outcomes.

This growth pattern aligns with what we highlighted in a recent POV: non-linearity is the only viable growth path for service providers in the Services-as-Software™ era, and TCS’ actions indicate its intention to align with this path.

That said, a net headcount reduction of approximately 20,000 employees (its largest ever drop in a quarter) has further heightened scrutiny of TCS’ employee management practices. The company will be well-served to kill this noise sooner to sustain client and market trust. Enterprise buyers should monitor delivery consistency and team continuity to ensure seamless operations. Such massive headcount reductions impact critical elements like onboarding and domain knowledge.

TCS answers the enterprise call for digital sovereignty

The announcement of a 1GW AI data center in India marks a bold move. The US$6–7 billion data center bet isn’t about hardware; it’s about where trust, regulation, and AI intersect. As governments tighten data residency and sovereignty rules, owning infrastructure is becoming the new rule of engagement. The investment positions TCS not just as a cloud or AI services provider, but as a player in the trust and control layer of technology consumption. Enterprise tech leaders should assess whether this infrastructure gives them increased control over AI workloads and data residency.

First acquisition in over a decade shows a shift in comfort zone

TCS acquired US-based ListEngage, a niche Salesforce and AI advisory firm with more than 100 professionals and over 400 Salesforce certifications, for US$72.8 million. While the size of the acquisition itself is not transformative, it may be a sign that the company is willing to move beyond the organic-only playbook and plug capability gaps through targeted M&A. The follow-up will show whether this is a seminal shift in TCS’ strategy or a fleeting phenomenon.

The Bottom Line: Stability is back on the surface. The real deal now is whether TCS can turn non-linearity into client value.

While Q2 FY25 wasn’t dramatic, it has been meaningful for TCS. All evidence suggests that the company is taking measured steps to build a long-term strategy, with non-linearity at its core. While the road ahead is long, much like for the broader industry, this quarter has set a quiet marker. Enterprises, meanwhile, should continue to track how TCS realizes and shares productivity gains while enabling faster delivery, better value, and stable execution.