The AI Disruption “Second Wave”: From Hype to Hard Reality
What happens when the AI gold rush meets the cold math of earnings season?
If 2025 was the year when AI was the center of media attention with huge promises and sky-high valuations, early 2026 appears to be the year when the truth is out. The story hasn't been a failure—in fact, it has grown and changed. Investors are no longer handing out big funds to any company that just mentions AI in their quarterly conference call. Instead, they are making the companies work harder, asking:
a. Where are your profit margins?
b. Where is your revenue growth coming from?
c. Who are the consumers, and who is the competitor?
This is the AI disruption "Second Wave" that many are referring to.
This is not an exciting wave. It is about ramifications.
From AI Euphoria to AI Scrutiny
Artificial intelligence ruled world markets in 2025. Companies identified themselves as AI-first. Startups worth billions were created. Old companies were rushing to implement AI in their workflows.
However, marketplaces ultimately move out of narrative and into accounting.
Investors are now questioning whether:
a. AI is creating sustainable profits.
b. Revenues from AI are replacing the old ones.
c. Old business models are being eaten up silently by AI.
And this is most obvious in the IT services sector.
Sector Rotation: Why IT Services Are Feeling the Heat
In India, the impact of this is mostly visible among stocks like Tata Consultancy Services and Infosys. These big giants based their dominance mainly on large outsourcing contracts, system integration, and digital transformation strategy within the enterprise.
AI, however, is changing the economics of such a model.
The Core Concern
The traditional IT services firms make revenue out of:
a. Massive implementation projects.
b. Maintenance contracts Long-term maintenance contracts.
c. Billing by workforce scale
AI interferes with this equation in two aspects:
a. Automation helps to save billable hours: Smart coding assistants and self-driven agents are capable of completing tasks that previously may have required a large number of people.
b. Clients want efficiency savings: The companies that bet on AI are at the same time, planning to cut their costs rather than increase their contracts.
c. That results in a paradox: AI improves productivity; however, it may lead to lower revenues.
Definitely, this has resulted in a negative sentiment among the investors of NIFTY IT India. The index, which initially was a star performer, is under some pressure with the growth expectations being reset.
This is not a drop but rather a change
The Fear of Structural Disruption
The major worry is not just slower growth. It is the loss of a certain way of working.
AI-native companies can:
a. Produce software at a higher speed
b. Have fewer team members
c. Provide outcome-based pricing
If enterprise clients decide to switch from traditional outsourcing to AI-based automation platforms, legacy IT companies may see a drop in their margins.
That is why investors are readjusting. It is not a resistance to AI. It is AI realism with a certain degree of selectivity.
Enter the “Shampoo Trade”
When the uncertainties in the growth sectors intensify, the money doesn't just vanish, it changes hands.
This time around, it is shifting into consumer goods.
Traders call it the Shampoo Trade. Why? Because during the times when technology is shaky, investors flock to companies that supply necessities like soap, detergent, toothpaste, and food.
Such companies:
a. Have a stable demand
b. Generate very predictable cash flows
c. Are less prone to technological disruption
Retailers like Walmart and Costco are also regaining investor attention worldwide as safe bets.
Hindustan Unilever is also benefiting from the same wave of sentiment in India. It is a robust company that will attract investors even during macroeconomic volatility.
The reasoning behind it is straightforward:
People can maybe defer upgrading the software at the workplace.
But they are not going to stop buying shampoo.
Why FMCG Feels Safe (For Now)
Food commodities help to soothe the nerves when there isn't much certainty in the world. Psychologically, most of the time they encompass the following features:
a. Stable earnings growth
b. Strong brand power
c. Pricing flexibility
d. Dividend consistency
When investors are afraid that AI might take over IT services or that technology valuations are on fire, they tend to treat staples as if they are very dull and direct their attention to what is safe.
However, that is precisely the second wave that is being referred to.
The Froth of Defensive Stocks
Paradoxically, the rush to safety seems to be creating its own danger.
Analysts are already warning that defensive stocks are getting frothy. To put it simply:
a. Valuations are going up
b. Price-earnings multiples are increasing.
c. The premium may not be justified by its growth expectations.
When there is too much money chasing safe assets, they stop being cheap.
Consider this:
a. If FMCG stocks are sold at a high multiple.
b. And if the earnings growth remains reasonable.
c. The future returns might be quite low.
The second wave of AI disruption is not necessarily about technology being struck. It is of money pouring furiously into seen safety—and perhaps going too far.
The Psychology of 2026 Markets
Let's dissect what is really going on.
2025 Mindset: "AI will lift all boats."
Early 2026 Mindset: The point is that AI will create winners and losers.
The change is very significant.
Investors are now looking for:
a. What IT companies can make money on AI without cannibalizing their own revenue?
b. Which consumer companies have a legitimate case for raising their new premiums?
c. Are we rotating too fast?
This is typical market behavior. As narratives mature, capital is reallocated.
Temporary Rotation or Structural Change?
Here's the big question:
Did the sector switch represent only a short-term trade or is it the beginning of a longer-term structural shift?
Scenario 1: Temporary Rebalancing
IT services evolve, build AI consulting revenue lines, and win investor trust again. FMCG valuations normalize. Markets stabilize.
Scenario 2: Structural AI Compression
The use of AI forever eliminates the need to hire traditional IT manpower intensive models. Margins compress over the years. Shareholders reprice the industry forever.
We are likely to be in the middle.
The major IT companies are making massive investments in:
a. AI partnerships
b. Proprietary AI tools
c. Automation frameworks
d. AI consulting divisions
But execution will determine outcomes—not press releases.
What Retail Investors Should Watch
In case you are driving through this terrain, the following is what counts: Revenue Mix Shifts
Do IT firms substitute conventional agreements with AI high-margin services? Margin Trends
Is there an increase in productivity that is reflected in cost savings or revenue loss? FMCG Valuations
Do the consumer staples trade way over historic averages? Earnings Growth Price Growth
When there is an increase in stock prices relative to earnings, then froth is formed.
The Bigger Picture: AI Isn’t Slowing Down
First, let me give you a significant point:
AI adoption is speeding up.
The second phase is not when AI fails; it is the market reacting to the real impact.
The shock doesn't always happen in a straight line. It ebbed and flowed.
a. Among the companies
b. One group loses the power to set prices.
c. Some turn around their business models.
d. Some die off without a word.
The market is just repricing such a reality.
Conclusion: Making a Living in the Second Wave
Among the IT services giants like TCS and Infosys, there is the challenge of showing how they can thrive in an AI-first world. Meanwhile, there are defensive strategies like Walmart, Costco, and Hindustan Unilever that are attracting capital flows, but their share prices can be hit if the market goes overboard with optimism.
The second step in any technological revolution is harder than the first one.
a. The first is a reward for faith.
b. The second wave gives out discernment.
And in 2026, discernment is finally back in style.
