New Delhi [India], September 10 (ANI): Falling costs of artificial intelligence models and their expanding capabilities beyond software could accelerate AI adoption by enterprises, but may also increase pricing and deflation risks for India's information technology services industry, Kotak Institutional Equities said in a report.

The brokerage said recent AI model launches by Anthropic, OpenAI, Google and Meta indicate that improvements in software-related tasks at the cutting edge have been gradual, while the performance gap between leading models is narrowing.

At the same time, AI capabilities in areas such as science, business workflow automation, engineering design, computer use and cybersecurity are developing rapidly in some models, it said.

According to Kotak, this trend could create more opportunities for Indian IT companies as businesses begin using AI for a wider range of tasks.

In particular, improvements in computer use and business workflow automation could lead to new AI applications within enterprises, the brokerage said.

"Lower capability improvement in software-related tasks compared to certain other domains is a positive outcome for Indian IT, as it opens up more AI adoption use cases," Kotak said.

However, the brokerage cautioned that the risk of AI lowering the cost of IT services remains.

It said AI companies continue to improve coding and reasoning capabilities, and even small improvements could have a significant cumulative impact as new models are launched.

Kotak also highlighted the growing focus on lower AI prices, which could further accelerate adoption. The report said Google and Meta have priced AI inference considerably lower than frontier models offered by Anthropic and OpenAI.

The brokerage said lower costs could drive greater AI adoption, making the trend a "double-edged sword" for Indian IT companies. While cheaper AI could increase the use of AI services, it could also accelerate the adoption of AI by businesses at scale and put pressure on service pricing.

Kotak said narrowing performance differences between AI models would also make it increasingly important for Indian IT companies to remain model-agnostic. Companies would need to work with multiple AI vendors and build systems to assess and compare model performance, it added.

The brokerage further flagged engineering design as an area that needs close monitoring, as improving AI capabilities could create deflationary pressure on engineering, research and development services.

Overall, Kotak said the latest AI model developments present "higher risks coupled with higher opportunities" for Indian IT companies.

The pace of AI development, along with continued declines in model pricing, is likely to remain a key factor shaping the outlook for the country's IT services industry, the brokerage said. (ANI)