OpenAI has recently launched GPT-5, its latest generative AI model, which may accelerate adoption among enterprises. According to brokerage firm Kotak Securities, this could reduce IT firms’ revenue but also create new opportunities in cloud foundation and legacy modernisation.
"OpenAI’s GPT-5 may accelerate the adoption of GenAI (generative AI) in software development, exposing IT services firms to revenue deflation risks, but it is also a step forward in opening up new opportunities from (1) cloud and data foundation, (2) legacy modernisation and (3) AI for business use cases," said Kotak Securities.
The brokerage firm highlighted that GPT-5 offers a meaningful improvement in reasoning and coding tasks, even though it might not present a step-jump in capabilities.
"GPT-5 claims significant advances in reducing hallucinations, improving instruction
following, and minimising sycophancy, while levelling up performance in three of ChatGPT’s most common uses: writing, coding and health," said Kotak.
GPT-5: Risks and opportunities for IT services
AI will increase generative AI adoption among enterprises, primarily due to their willingness and focus on adopting generative AI in software development.
"Given (1) the focus of AI labs to increase coding capabilities, (2) the willingness of enterprises to adopt generative AI in software development, (3) the increasing developer usage of generative AI tools and (4) the higher focus of enterprises to get productivity from AI adoption, we believe that the adoption of generative AI in software development will increase and present revenue deflation risks for IT services providers," said Kotak.
The brokerage firm said that new opportunities from generative AI adoption will offset revenue deflation in existing volumes over time.
Nevertheless, Kotak expects a lag in the pickup of new opportunities and for savings in software development to be deployed into these new opportunities, leading to a period of net headwinds.
"We believe gen AI can impact revenue growth for Indian IT by 2-3 per cent for a period of two to three years on a net basis. Our current revenue growth assumptions build in some portion of this impact already," said Kotak.
Read all market-related news here
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.