Can AI Make DXC, KD, and On-Prem Fashionable Again?

Morgan Stanley examines whether on-premise data center demand could revive growth for DXC and Kyndryl (KD). Only ~13% of surveyed CIOs report AI returns above token spend, while adoption of open-weight models is expected to rise sharply over the next three years; cost control, data sovereignty/privacy and assured compute access are the three potential on-prem drivers. On-prem-related work, including mainframe services, may account for ~20-35% of DXC's and KD's businesses, and a return to low-single-digit growth could lift valuations to ~9x P/E from ~5-6x today. Evidence remains largely anecdotal with limited RFPs, and higher leverage (DXC 1.99x, KD 1.53x) may constrain incremental investment, so both remain Equal-weight; ACN and CTSH could also benefit from new infrastructure opportunities, though greater capital intensity may pressure FCF conversion.