Microsoft's US$ 3 Billion AI Capex Could Boost these 3 Indian Stocks for Years to Come

Despite India's ever-increasing efforts to incorporate artificial intelligence (AI) into various aspects, one thing holding the industry back is the access to immense computing power needed to train their AI models.

This is a common challenge for many such AI innovators across India. The dream of an AI-powered India has always seemed tantalisingly close, but the barriers - expensive computing resources, complex infrastructure, and fragmented support - have stood in the way.

That was, until now.

In a bold move, India has embarked on a transformative journey - the India AI Mission.

With a budget of Rs 100 bn, this mission aims to build an AI ecosystem from the ground up, not just adopting technology, but fostering an environment where AI innovation thrives across industries.

The Ministry of Electronics and Information Technology (MeitY) has handpicked seven companies to spearhead this mission. Among the listed companies are familiar giants like Tata Communications, E2E Networks, and the IPO bound Jio Platforms.

These companies will form the bedrock of India's AI infrastructure, deploying a network of 1,000 AI compute units powered by 10,000 GPUs.

But why GPUs?

For those not immersed in the world of AI, it might be hard to understand the significance of these specialised processors.

Simply put, graphic processing units or GPUs are the engines that drive AI. They have the power to process vast amounts of data in record time, enabling everything from natural language processing to image recognition and autonomous vehicles.

But they come with a hefty price tag, which has traditionally made AI development out of reach for many startups and small businesses.

Recognising this challenge, the government has allocated Rs 50 billion (bn) to subsidise GPU costs and cloud services. By doing so, it hopes to level the playing field, allowing even the smallest innovators to harness the power of AI without breaking the bank.

Even global behemoths are looking at India for their AI needs. Global tech giant Microsoft plans to invest US$ 3 bn in India (about Rs 25.7 bn) over the next two years in India's cloud computing and AI infrastructure.

Part of a global expansion with US$ 80 bn allocated to AI-ready data centers worldwide, Microsoft aims to train 10 m people in AI skills in India by 2030.

With that quick explainer out of the way, let's look at the three listed companies that stand to benefit from all this.

#1 E2E Networks Ltd

E2E Networks is an AI-focused, NSE-listed hyperscale cloud platform that provides advanced cloud GPUs along with a complete ecosystem of cloud technologies, tailored for the creation and deployment of AI/ML applications.

The company has made a landmark achievement by becoming the first company in India to bring NVIDIA H200 Tensor Core GPUs to the market, known for delivering up to 1.9x higher inference performance than the NVIDIA H100 GPUs.

E2E Networks has partnered with Larsen & Toubro (L&T), with L&T acquiring a 15% stake in the former with plans to increase it to 21%, enhancing E2E's AI expertise alongside L&T's data center infrastructure in Panvel and Chennai.

With the government earmarking significant funds for computing capacity as part of the India AI mission, E2E Networks is well-positioned to capitalize on this opportunity.

By incorporating cutting-edge GPUs and enhancing its AI cloud offerings, the company seeks to assist businesses in shifting to AI-powered operations while reinforcing its leadership in the AI and data center sectors.

This blend of government backing, technological innovation, and strategic alliances positions E2E Networks as a key player in India's AI revolution.

Coming to its financials, for FY24, E2E Networks' revenue came in at Rs 950 m, a growth of around 43% YoY.

While its net profit for the full year more than doubled to reach Rs 220 m. The strong growth could be attributed to more orders and execution during the year.

In FY24, the company incurred a capex of Rs 1.9 bn.

In the first quarter of FY25, the company's revenue grew to Rs 417 m, more than doubling YoY. While net profit grew 44% YoY to Rs 101 m.

This was followed by an even better second quarter. Revenues during Q2 shot up to Rs 480 m from Rs 220 m a year ago. While net profit also doubled from Rs 60 m in September 2023 to Rs 120 m in September 2024 quarter.

Going forward, by integrating advanced GPUs and expanding its AI cloud capabilities, E2E aims to support businesses transitioning to AI-driven operations while solidifying its leadership in the AI and data centre industries.

Here's how the stock price has moved in the past 1 year.

For more details, see the E2E Networks company fact sheet and quarterly results.

#2 Tata Communications

Tata Communications, originally incorporated as VSNL on 19 March 1986, transitioned under the administrative control of the Tata Group in February 2002 following the government of India's disinvestment of a 25% stake to a strategic partner.

The company stands as a leading global digital ecosystem enabler, holding a strong position in emerging markets with a worldwide infrastructure.

Tata Communications, a part of the Tata Group, has taken a significant leap into the AI sector by submitting proposals for the government's GPU tender and launching an AI Cloud infrastructure powered by NVIDIA Hopper GPUs, which will support AI applications across various industries.

The first phase of this project begun in 2024, with a second phase planned for 2025, featuring Blackwell GPUs.

This collaboration with NVIDIA and alignment with the India AI mission positions Tata Communications to drive innovation, enhance AI capabilities, and lead India's AI transformation while boosting revenue through AI cloud services.

Going forward, Tata Communications is well-positioned to boost revenue through AI cloud services and solidify its market leadership.

Here's how the stock has performed in the past 1 year.

For more details, see the Tata Communications company fact sheet and quarterly results.

#3 Jio Platforms (Reliance)

Jio Platforms, an Indian multinational technology company based in Mumbai, serves as a subsidiary of Reliance Industries.

Founded in 2019, it operates as a holding entity for Jio, India's largest mobile network operator, along with other digital ventures of Reliance.

Jio's experience in building scalable networks and digital platforms equips the company to meet the infrastructure demands of the India AI Mission.

As one of the shortlisted bidders for the government's GPU tender, Jio Platforms is investing in AI compute capabilities to support the development of advanced AI models and applications.

These efforts will help accelerate the use of AI in areas such as healthcare, education, smart cities, and agriculture, aligning with the vision to transform India into a global AI powerhouse.

A major highlight of Jio's AI expansion is its partnership with Nvidia. The two companies are collaborating to build a cloud-based AI infrastructure that will include some of the most advanced tools available.

Jio is gaining access to Nvidia's GH200 Grace Hopper Superchip and DGX Cloud, which will power their AI supercomputing capabilities.

Further, Jio's AI-driven platforms, including Jio Cognitive Platform (JCP) and JioCloud AI, are designed to support developers and businesses by offering robust AI services for a range of applications, from network management to advanced data processing.

Going forward, Jio Platforms plans to increase its market share in India.

Conclusion

The Indian government's India-AI mission followed by Microsoft's big announcement for expanding AI in India marks a transformative step for the country, setting the foundation for a future driven by AI innovation.

Companies like E2E Networks, Tata Communications, and Jio Platforms are not only enabling this vision but are also positioned to thrive in this AI-driven era.

For investors, this evolution presents both opportunities and considerations. While the potential for short-term growth is evident, the long-term impact of global AI trends and market dynamics will also play a role in determining success.

Before making any investment decisions, investors should carefully evaluate a company's financial health and corporate governance practices to ensure sustainable long-term growth.

As your starting point, you can check out Equitymaster's user-friendly and free stock screener to filter the best AI stocks in India.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...