Microsoft and Amazon are making big bets, but where does India stand in the global competition?

Artificial intelligence (AI) has been in the spotlight this week with tech giants Amazon and Microsoft pledging an astonishing combined investment of more than $50 billion in India.

Microsoft's Satya Nadella announced $17.5 billion (£13.14 billion), the company's biggest investment in Asia in its history, “to help build the infrastructure, skills and sovereign capabilities needed for India's AI-first future.”

Amazon has followed suit, announcing that it will invest more than $35 billion in the country by 2030, with an unspecified portion of that investment going to strengthen its AI capabilities.

This announcement comes at a particularly interesting time.

As fears of an AI bubble sweep global markets and valuations of tech stocks soar, several leading brokerages have taken a contrarian view of India's AI landscape.

Jefferies' Christopher Wood said the country's stocks were a “reverse trade in AI”. This essentially means that if AI trade suddenly unwinds, or simply put, the global bubble bursts, India should outperform other markets in the world.

HSBC echoed similar views, saying Indian equities offer “hedging and diversification” for those worried about the ongoing rise in AI.

This comes as Mumbai stocks have lagged their Asian peers over the past year as foreign investors have poured billions of dollars into AI-driven technology companies in South Korea and Taiwan in the absence of comparable opportunities in India.

In this context, while investments in Amazon and Microsoft provide much-needed replenishment, it is still worth asking where India really stands in the global AI race.

There are no easy answers.

AI adoption is progressing rapidly in India. Investment in parts of the value chain, such as data centers, the physical backbone of AI, and chip manufacturing facilities, is starting to trickle out. Just this week, American chipmaker Intel announced it would partner with Mumbai-based Tata Electronics to manufacture chips locally.

However, when it comes to sovereign AI models, India seems to be playing catch-up.

About a year and a half ago, the Indian government launched the AI ​​Mission and began supplying startups, universities and researchers with high-end computing chips to develop large-scale indigenous AI models like OpenAI and China's DeepSeek.

According to the Federal Ministry of Electronics, the launch of a sovereign model with support for more than 22 languages ​​is imminent. But in the meantime, others like DeepSeek and OpenAI have made further progress and released newer variants.

India's $1.25 billion sovereign mission is overshadowed by France's $117 billion and Saudi Arabia's $100 billion programs, although the government recognizes the need to reduce over-reliance on foreign platforms due to risks of surveillance and sanctions.

The country's ambitions face many other hurdles, from semiconductor availability to skilled talent and a fragmented data ecosystem, according to global consulting firm EY.

India currently lacks sufficient computing infrastructure and decades of research and development (R&D) investment that gave it a distinct advantage over China and the United States.

Despite India's global strength in AI talent, it struggles to keep developers in the country.

“The current tightening of overseas work visas provides India with an opportunity to retain domestic talent and attract Indian-origin talent into the country. However, given the global mobility of top AI talent, attractive policy incentives need to be put in place to encourage migration to India,” the EY report said.

For example, China offers a variety of incentives, including “financial support and subsidies, tax incentives and funding for research and development, specialized talent visas, and fast-track immigration,” the report said.

India has a much higher concentration of AI skilled professionals than the global average, specifically 2.5x. Policies to retain this talent are not yet in place.

However, despite the challenges, India, like countries such as Brazil and the Philippines, is outperforming itself in the field of AI, especially in the context of its stage of economic development, says the UNCTAD (United Nations Conference on Trade and Development) study.

According to the widely researched Stanford AI Index 2025, the country ranks in the top five in the world for the number of new companies receiving AI investments.

Last year, 74 new AI startups in India received funding, just a fraction of the more than 1,000 companies funded in the US.

Indian AI startups have privately raised just $1.16 billion in funding, compared to more than $100 billion in the US and nearly $10 billion in China.

However, there is ample intellectual engagement with AI in India, with the Stanford AI Index showing that India accounts for 9.2% of AI paper publications, slightly more than the US but behind Europe and China.

Experts say India's AI advantage may lie less in building expensive language models and more in using them downstream to stimulate entrepreneurship.

Shailendra Singh, managing director at Peak XV Partners, which invests in AI startups, told the BBC: “In the short term, I think there is such a concentration of AI in the US. But over the next five to 10 years, AI will have a massive democratizing effect on new company formation. There will be a lot of small founders and entrepreneurs, and the downstream effects will be incredible in places like India and Asia-Pacific.”

Singh said the number of AI-powered consumer apps is rapidly increasing in India, and investment in AI startups has doubled since last year.

Additionally, many startups in India are now leveraging AI to tackle real-world challenges for millions of people who are still on the wrong side of the digital divide.

For example, MahaVISTAAR, an AI app run by the Government of Maharashtra, delivers important agricultural information in the local Marathi language, reaching more than 15 million farmers.

“The places where it is most difficult to make artificial intelligence work are also the places where it is most important. If AI can serve India's classrooms, clinics, and farms, it can serve the world,” Nandan Nilekani, the architect of India's biometrics program, wrote in The Economist last month.

Some of that is already starting to happen, as apps like MahaVISTAAR demonstrate.

While AI brings new opportunities, it has the potential to disrupt India's IT services sector, which has driven the economy and created millions of jobs over the past three decades.

India's multibillion-dollar IT companies will become a major area of ​​”vulnerability” as AI transforms some business functions, Jefferies said.

That vulnerability is already showing.

India's IT back-office growth has slowed, stock prices have slumped, jobs are shrinking and wages are stagnant amid fears of new disruptors.

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