Material Insights · Understanding the Material World

Data centres and cloud and Software and IT services

Cloud platforms and software are two layers of the same stack: software firms rent compute from cloud providers, and cloud providers buy and build vast amounts of software to run it. For India's IT services firms, cloud migration and AI work on the hyperscalers' platforms are a main source of growth, and some, like TCS, are now building data centres themselves.

Data centres and cloud (industry) and Software and IT services (industry): 6 relationships.

How they are linked

1. Buys from

Physical flow · ₹14.3 per ₹100 · Data centres and cloud buys from Software and IT services

Cloud providers buy operating systems, virtualisation, database and security software and pay IT firms to build and run their platforms.

  • ₹14.3 of every ₹100 of Data centres and cloud output, all rounds (India 2022)
  • ₹12.1 bought directly

About a seventh of cloud output value goes to software and IT services once indirect purchases are counted. US producer price indices for the two move together only loosely (monthly correlation about 0.06, 0.28 over 12 months), as cloud prices follow hardware costs while software prices are set by licences.

Sources: OECD; Material Insights (World Bank, FRED, IMF data)

2. Buys from

Physical flow · ₹12.8 per ₹100 · Software and IT services buys from Data centres and cloud

Software vendors and IT firms host their products, development tools and clients' systems on cloud and colocation capacity.

  • ₹12.8 of every ₹100 of Software and IT services output, all rounds (India 2022)
  • ₹10.8 bought directly

The two-way flow is nearly balanced, which is unusual between industries and reflects how closely the two layers of the stack are integrated.

Sources: OECD

3. Industry input

Physical flow · Criticality 4 of 5 · Software and IT services to Data centres and cloud

Hyperscale cloud providers depend on platform software and on partners that move clients' workloads onto their clouds.

Hyperscalers sell much of their enterprise business through partners that plan and carry out migrations, so the capacity of IT services firms affects how fast cloud demand grows.

Enterprise types that depend on it:

  • Hyperscale cloud providers: platform software and partners (criticality 4 of 5)

Sources: Material Insights

4. Industry input

Physical flow · Criticality 4 of 5 · Data centres and cloud to Software and IT services

Nine enterprise types in software depend on data centres and cloud, from operating system and SaaS vendors to cybersecurity firms, IT outsourcers, BPM providers and global capability centres.

Most modern software cannot be delivered without hosted capacity, so an outage or a price rise at a major cloud provider spreads across the whole software industry at once.

Enterprise types that depend on it:

  • Hyperscale cloud providers: platform software and partners (criticality 4 of 5)

Sources: Material Insights

5. Cloud and AI work

Transition · Rising · Cloud growth drives IT services demand

Moving clients' systems to the cloud and building AI applications on cloud platforms is a large share of new work for IT services firms.

  • US$ 143.4 billion world cloud infrastructure services revenue, Q2 2026, up 43%
  • 63% combined share of Amazon (28%), Microsoft (20%) and Google (15%), Q2 2026
  • US$ 149 billion Indian IT services revenue, FY26 estimate

Synergy says generative AI was the main driver of the fastest cloud growth in eight years, and names India among the fastest-growing country markets outside the US. Nasscom lists cloud among the growth drivers for an Indian tech industry of about US$ 315 billion in FY26, with AI revenue of US$ 10 to 12 billion. The risk for IT firms is that AI tools on these platforms automate some of the labour they sell.

Sources: Synergy Research Group; ETV Bharat (Nasscom estimates)

6. IT firms build data centres

Geography and ownership · Rising · Indian IT firms move into data centres

Indian IT services firms are adding data-centre capacity to sell AI infrastructure alongside services, putting both industries inside the same groups.

  • over 1 GW AI data-centre capacity planned by TCS's HyperVault
  • up to ₹18,000 crore equity and debt committed by TCS and TPG, November 2025

TPG will invest up to ₹8,820 crore for 27.5% to 49% of HyperVault, which TCS says lowers its own capital outlay. The move takes a services firm into capital-heavy infrastructure with different returns, and puts it in competition with the hyperscalers it also partners with.

Sources: Tata Consultancy Services

For investors

Key learnings

  1. Cloud and software each spend about ₹13 to 14 of every ₹100 of output on the other, so each is one of the other's largest suppliers, even though their prices move only loosely together.
  2. Three hyperscalers hold about 63% of cloud infrastructure, which gives them strong bargaining power over the IT firms that build on their platforms.
  3. Indian IT firms such as TCS are adding data centres, which brings new growth but also capital intensity that their investors have not been used to.

What to track

  • Cloud infrastructure revenue growth and shares: Fast growth means more migration and AI work for IT services firms (Quarterly · Synergy Research)
  • Indian IT firms' revenue from cloud and AI deals: Shows whether AI is adding to or replacing services revenue (Quarterly · company results, Nasscom)
  • Data-centre capacity built by IT groups: Indicates how far services firms are shifting to capital-heavy assets (As announced · company filings)

For policymakers

Key learnings

  1. Much of India's US$ 246 billion of FY26 tech exports is delivered on foreign cloud platforms, so cloud access and pricing are part of India's export competitiveness.
  2. Domestic data-centre building by Indian IT groups supports data localisation and AI capacity at home.
  3. AI automation on cloud platforms could slow hiring in an industry expected to employ about 59.5 lakh people directly in FY26.

What to track

  • Tech industry headcount and net additions: Early sign of AI-driven change in IT employment (Annual · Nasscom)
  • Data-centre capacity in India: Shows how much cloud demand is served from Indian soil (Half-yearly · CBRE, industry reports)

India

India's tech industry earns about US$ 315 billion in FY26, mostly from services delivered on the big cloud platforms; India is among the fastest-growing cloud markets, and TCS's HyperVault plans over 1 GW of AI data centres.

Sources

  1. OECD Input-Output Tables 2025 edition, India 2022, OECD
  2. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)
  3. Industry map: Data centres and cloud, Material Insights (2026)
  4. Industry map: Software and IT services, Material Insights (2026)
  5. Q2 cloud market passes $143 billion; highest growth rate in eight years, Synergy Research Group (2026)
  6. India FY26 tech revenues seen 6.1 pc up at USD 315 billion, jobs also grow: Nasscom, ETV Bharat (Nasscom estimates) (2026)
  7. TCS and TPG to invest up to Rs 18,000 crore in HyperVault, Tata Consultancy Services (2025)