TCS’s $7 Billion Data Centre Foray Sparks Investor Caution Amid Strategic Shift

Tata Consultancy Services (TCS) has announced plans to invest up to $7 billion in establishing a 1-gigawatt data centre unit in India, marking a major strategic shift for the country’s largest IT services firm. The move, aimed at capitalizing on the government’s push for local data storage and the global AI-driven surge in computing demand, prompted a 1.5% dip in TCS shares on Friday. The company expects to achieve full capacity within five to seven years but has yet to disclose financial partners for the project.

Analysts have reacted cautiously to the development, citing concerns over TCS’s transition from a traditionally capex-light model to a capital-intensive venture. PhillipCapital’s Karan Uppal noted that while the plan is ambitious, it could weigh on TCS’s return ratios, with the firm’s FY25 return on equity at 51% and return on invested capital above 80%. Brokerage BOBCaps described the move as “negatively surprising,” estimating returns from the AI data centre business could fall to the low teens, significantly below the company’s core business metrics.

Jefferies analysts also questioned the strategic fit, citing limited synergies between data centre operations and TCS’s core IT services. However, they acknowledged the company’s forward-looking intent to position itself in emerging growth areas. India’s data centre industry is expected to expand rapidly, with Colliers projecting capacity to more than triple to 4.5 GW by 2030, attracting $20–25 billion in investments over the next five to six years.

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