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AI disruption or reset opportunity? UBS, Nomura decode IT sell-offWith valuations correcting sharply and questions emerging around long-term growth, brokerage firms UBS and Nomura have offered diverging but nuanced views on whether the recent sell-off signals deeper risks or a potential opportunity.By Meghna Sen  February 17, 2026, 7:55:05 AM IST (Published)3 Min ReadShares of Indian IT services companies remain volatile, with concerns around AI-led disruption weighing on near-term sentiment.

Analysts at brokerage firms UBS and Nomura have weighed in on the sharp correction and the structural questions facing the sector.

UBS believes the recent sell-off reflects some near-term overreaction, although it cautions that questions around terminal growth are legitimate and cannot be dismissed.

The brokerage said that it will closely track how quickly and effectively IT services firms adapt to the changing landscape, citing that sustaining growth will require moving up the value chain rather than competing purely on pricing and delivery efficiency.

Large-cap IT stocks are now trading at 16-21x forward earnings, below historical averages across most time periods.

UBS said that current valuations imply terminal free cash flow growth of 4-6%, compared with 6-7% a month ago, alongside free cash flow (FCF) yields of around 6%.

Despite the reset in expectations, the brokerage sees a gradually improving environment in the near to medium term, driven by macro recovery and rising spending on AI-readiness initiatives.

Nomura, meanwhile, described the current correction as a front-loading of potential pain, with markets pricing in the extinction of older business models even before gains from new AI-driven opportunities become visible.

It argued that while the transition may be uncomfortable, high FCF generation and dividend yields of 4-5% should provide a floor to valuations.

The brokerage addressed the central concern of whether AI poses an existential risk to Indian IT.

Investors, it said, are grappling with three key fears: disruption to the application development and maintenance market from emerging AI-native players, the possibility that SaaS platforms themselves could lose relevance and, by extension, their implementers, and the risk of margin compression in an AI-intensive world.

Nomura believes these concerns oversimplify the evolving role of IT services firms.

It outlined three valuation scenarios. In a structural decline case, where routine work is heavily automated and revenue faces sustained deflation of 6-7% or more, growth could slow to 2-3% at best or even turn negative.

With negligible earnings expansion, valuation multiples may compress to 10-12x.

In a second scenario, where companies successfully pivot toward data and AI-led services, revenue growth could revert to long-term averages, supporting P/E multiples in the early 20s.

A more optimistic third scenario envisions IT firms transforming into AI orchestrators, shifting from selling effort-based services to delivering value and outcomes.

Such a shift could drive nonlinear revenue and margin expansion, pushing multiples above the early 20s.

Nomura said that valuations have corrected meaningfully and are now below 12-year averages, trading at a 12-39% discount to five-year averages.

Among large caps, it prefers Infosys and Cognizant. In the mid-cap space, it favours Coforge, while eClerx is its preferred small-cap pick.Continue ReadingNote To ReadersDisclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.TagsIndian IT stocksInfosys share priceIT stocksshare market todayTCS share price