AI slows growth for Infosys and keeps it afloat at the same time

Indian tech services giant Infosys has mixed news about AI.

In its most recent quarterly results late last week, the company revealed that it’s racked up 29 percent sequential growth in AI revenue, which now delivers 10.5 percent of Infosys’ incoming cash.

Those are far nicer numbers than the 1.5 percent year-on-year revenue growth Infosys reported for its second quarter.

“Growth was below our expectations. Volume was softer, and price increases were lower than anticipated amid high competitive intensity,” chief financial officer Jayesh Sanghrajka told investors. One reason for lower price increases was that customers expect Infosys to charge less when it uses AI, and those cost savings are now “baked in” to its multi-year deals.

CEO and managing director Salil Parekh also pointed to AI as one reason the cost of services is falling.

“I think what we see today is there is definitely some of our peers who are putting, I would say, more intense effort into the pricing pressure,” he said, “but it is also across the board because of the environment and also the discussion on AI productivity. If you are talking with clients today on large programs, it is a three or five-year outlook.”

That leaves Infosys dependent on new work from AI to boost revenue growth, while AI also makes it hard to keep growing revenue from existing customers.

Infosys won’t go low to win deals and intends to hold its margins at around 21 percent, Sanghrajka said. He sought to prove that point by citing “a large deal that we walked out of, or we did not pursue because it did not meet our return expectations.”

To help preserve margins, the company is conducting “Project Maximus” to find efficiencies within its own operations. AI-powered tools to win more sales are also in the mix.

The company sees difficult months ahead. Sanghrajka said the retail and high-tech industries have slowed their services spending and acknowledged that the second half of Infosys’s financial year is usually its slow period.

The company tried to convince investors that they have little to worry about, pointing to $8.8 billion of new deals won in the first half of its financial year – 68 percent of which were net new customers – as a sign that Infosys’ fundamentals are sound.

But the company also offered less optimistic guidance about its future. In its Q1 results, Infosys predicted full-year revenue growth of 1.5 to 3.0 percent. In Q2, it revised that prediction to 1.0 to 2.0 percent.

Infosys’s share price didn’t dive after that news but is already down over 25 percent in the last twelve months. And Bloomberg reports that investment analysts have downgraded the company, suggesting they feel its prospects are poor. ®