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The latest advancements in artificial intelligence, particularly Anthropic's newly launched Claude Fable 5 model, could accelerate productivity gains in software engineering while increasing revenue deflation risks for IT services companies, according to a report by Kotak Institutional Equities.
The brokerage said the new model represents a significant leap in coding and software development capabilities, raising concerns for firms with large exposure to application development and maintenance services. "Claude Fable 5 increases AI disruption risks for IT services," the report said, adding that the model's "stronger improvement in software tasks and improvement in agentic software development capability increase revenue deflation risks for IT services firms in the near to medium term, particularly for firms with large exposure to application services." Anthropic recently released Claude Fable 5 and Mythos 5 models with enhanced capabilities and a one-million-token context window. While the report noted that the new model does not represent a dramatic jump over the earlier Mythos Preview model, it highlighted substantial gains in software engineering performance. According to Kotak Institutional Equities, "the performance of Claude Fable 5 shows a significant improvement in software engineering tasks." The report cited benchmark data showing that in SWE Bench Pro, an agentic coding benchmark, Fable 5 scores 11 per cent higher than Claude Opus 4.8 and 22 per cent higher than GPT 5.5. The report also pointed to evidence of rising productivity enabled by advanced AI models. It noted that Anthropic had indicated a step jump in average code per person using the Mythos Preview model and that AI-generated code quality, which had previously lagged human developers, is now on par with current models. Kotak estimates that enterprise adoption of generative AI could affect IT services revenues by 3-3.5 per cent annually over the next three years. The report said faster-than-expected progress in software-related AI capabilities could increase disruption risks for the sector. "We expect Mythos 5/Fable 5 to increase efficiencies across all IT services segments," the report stated. However, it warned that stronger agentic software engineering capabilities could widen productivity differences between application services and other IT services segments. Despite the advances, Kotak highlighted several factors that may limit widespread enterprise adoption of Claude Fable 5, including built-in safeguards, data retention requirements and a shift toward token consumption-based pricing. The report said enterprises are becoming increasingly focused on controlling AI-related costs and will need to decide whether the greater accuracy and autonomy offered by frontier models justify higher token expenses. "How enterprises utilise frontier models given a focus on token costs will be key to watch out for," the report said. (ANI)
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