Infosys NYSE: INFY reported 1.5% year-over-year revenue growth and 1.2% sequential growth in constant currency for its second quarter, while narrowing its full-year constant-currency revenue growth outlook to 1%-2% from 1.5%-3% previously.
Chief Executive Officer and Managing Director Salil Parekh said the company’s artificial intelligence revenue was a key bright spot, reaching 10.5% of quarterly revenue and increasing 29% sequentially. AI revenue represented 8.2% of revenue in the prior quarter.
“AI revenue was a standout,” Parekh said, adding that the company’s work in building AI agents, legacy modernization, process AI and data AI was growing particularly well. He said Infosys’ Topaz Fabric platform and partnerships with frontier-model and open-weight-model providers were helping clients deploy AI across different models while optimizing token costs.
Large Deals Support Future Growth
Infosys signed $5.2 billion in large deals during the quarter, including two mega deals. One was a net-new, seven-year agreement worth more than $2 billion with a large international company. Parekh said the deal is expected to contribute more than 1 percentage point to revenue growth in the next financial year.
The second mega deal was a $1 billion renewal. Chief Financial Officer Jayesh Sanghrajka said the net-new deal would begin ramping only in the latter part of the fourth quarter, meaning its contribution in the current year would be limited.
“In this year, there is going to be a very minuscule amount of benefit that you will get from that deal,” Sanghrajka said. “But the next year… it will contribute over a percent in our revenue.”
Parekh said the company’s large-deal pipeline remains healthy and includes additional potential mega deals. He added that nearly all large deals include some AI component, while one or two involve business transformations in which AI is a fundamental element.
Guidance Reflects Softer Volumes and Pricing Pressure
Management attributed the reduced revenue outlook to softer volumes, pricing pressure, increased client demands for productivity gains and lower discretionary spending in some sectors. Sanghrajka said the company had expected greater uncertainty at the low end of its prior outlook.
Infosys cited weakness in retail and high technology, while reporting strength in financial services, energy and utilities, and manufacturing. Sanghrajka said high-tech and retail performance was affected by discretionary-spending reductions and client-specific slowdowns. High-tech weakness was more specific to the U.S., while retail softness was broadly similar across geographies.
The company also pointed to changes in its onshore-offshore delivery mix and its decision not to pursue a European manufacturing contract that did not meet its return expectations. Sanghrajka said those factors together have affected growth by roughly 2 percentage points.
Parekh said management remains focused on contracts that satisfy Infosys’ economic thresholds, even amid competitive intensity. He described AI-led productivity demands as a finite process, while characterizing AI services and AI-driven transformation work as a longer-term growth opportunity.
Margins Remain Stable as Company Plans Compensation Increases
Operating margin remained stable at 21% in the quarter, and Infosys maintained its full-year operating margin guidance of 20%-22%. Free cash flow totaled $922 million.
Sanghrajka said quarterly margin performance reflected a 70-basis-point impact from post-sale customer support and a 20-basis-point impact tied to an additional month of acquisition-related amortization. Those headwinds were offset by a 40-basis-point currency benefit, a 20-basis-point benefit from higher calendar and working days, and a 20-basis-point benefit from the company’s Project Maximus efficiency program.
Looking ahead, he said compensation increases and continued pricing pressure would be headwinds in the second half, while Project Maximus would continue to provide offsets. Management said it does not separately disclose margins for AI work versus traditional services.
“We are very comfortable with the guidance of 20%-22%, which has been consistent for a number of years now,” Parekh said.
Hiring, Cybersecurity and GCC Expansion
Infosys added 4,000 employees on a net basis during the quarter and hired 8,000 college graduates. The company maintained its target to hire about 20,000 graduates for the full year. Sanghrajka said the company’s roughly 13% attrition rate means it must replace approximately 45,000 departing employees annually, while fresh graduates require six to eight months of training before deployment.
The company reported utilization of about 85%, which Sanghrajka described as optimal. Parekh said the number of employees using coding tools, as well as the number receiving AI training and certifications, continues to increase.
On U.S. immigration policy and potential hiring costs, Parekh said most Infosys employees in the U.S. are local hires and management does not expect a material change in attrition or costs. He said the company has adjusted its workforce mix over several years.
Parekh also identified cybersecurity as a major growth opportunity. He said Infosys is working with clients to use frontier-model capabilities and agents to identify and address vulnerabilities, supported by human expertise. The company’s cyber business was expanded through a small acquisition in Australia in prior quarters, he said.
Finally, Parekh said global capability centers, or GCCs, remain a strong growth area as companies seek to build or transform centers with AI capabilities embedded in their operations. Infosys is in discussions with some organizations that may need help scaling, transforming or restructuring their GCC operations, he said.
The company’s board recommended an interim dividend of INR 26 per share, up from INR 25 in the previous quarter. Sanghrajka said the increase aligns with Infosys’ capital allocation policy to return 85% of free cash flow to shareholders over five years through dividends and buybacks.
About Infosys (NYSE:INFY)
Infosys Ltd. is a digital services and consulting company, which engages in the provision of end-to-end business solutions. It operates through the following segments: Financial Services, Retail, Communication, Energy, Utilities, Resources, and Services, Manufacturing, Hi-Tech, Life Sciences, and All Other. The company was founded by Dinesh Krishnan Swamy, Senapathy Gopalakrishnan, Narayana Ramarao Nagavara Murthy, Raghavan N. S., Ashok Arora, Nandan M. Nilekani, and S. D. Shibulal on July 2, 1981 and is headquartered in Bangalore, India.
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