What Infosys (INFY) Said on Its Q2 Earnings Call

Key Points

• AI momentum and large deals strengthened Infosys’ future growth prospects: AI revenue rose 29% sequentially to 10.5% of total revenue, while the company signed 19 large contracts worth $5.2 billion, including a new seven-year financial-services deal exceeding $2 billion.
• Fiscal 2027 revenue guidance was cut to 1%–2% growth because of weaker volumes, slower discretionary spending, lower pricing increases and intensified competition, particularly in retail and high-tech. Operating-margin guidance was maintained at 20%–22%.
• Second-quarter operating margin held at 21%, while free cash flow reached $928 million and the company maintained a debt-free balance sheet. Infosys also declared a 26-rupee interim dividend and increased headcount by about 4,400 employees.

Infosys NYSE: INFY reported 1.5% year-over-year revenue growth in constant currency for the second quarter of fiscal 2027, while raising its emphasis on artificial intelligence services and large-deal execution amid cautious client spending and heightened pricing competition.

Revenue totaled $5.145 billion, up 1.2% sequentially in constant currency terms. CEO and Managing Director Salil Parekh said AI revenue grew 29% sequentially and represented 10.5% of total revenue, compared with 8.2% in the previous quarter. The company said its AI work is increasingly tied to enterprise-scale transformation programs, modernization projects and operational efficiency initiatives.

“As enterprises adopt AI at scale, another quarter of strong growth in AI revenues is a recognition of a differentiated market positioning and client confidence,” Parekh said. He added that AI is now part of almost every large transaction Infosys is pursuing, including programs focused on customer service, quality improvement, growth, cost optimization and technology modernization.

Large deals provide future growth visibility

Infosys signed 19 large deals with total contract value of $5.2 billion during the quarter, its second-highest quarterly TCV over the past five years, according to CFO Jayesh Sanghrajka. About 62% of the bookings were net new.

The company highlighted two mega deals. One was a net-new, seven-year financial-services contract valued at more than $2 billion. Transition on the contract is expected to begin in the second half of the fourth quarter, and management expects it to contribute more than 1 percentage point of company revenue growth in fiscal 2028. Infosys also renewed an existing financial-services contract valued at $1 billion.

Parekh said the net-new mega deal involves business transformation using AI to improve technology and operations work. He said the contract includes some employee transfers but no asset transfers, and the company does not expect a material margin impact from the transition this year.

For the first half, Infosys recorded $8.8 billion in large-deal wins, up 28% year over year, with 62% of bookings classified as net new. Financial services accounted for more than $3.5 billion of second-quarter deal signings.

Management said the large-deal pipeline remains healthy and includes additional mega-deal opportunities. Parekh said the company expects its organic business to be “in a good shape” next year, citing AI momentum, the signed mega deal and the deal pipeline.

Guidance reduced as volume and pricing lag expectations

Infosys revised its fiscal 2027 constant-currency revenue growth forecast to 1% to 2%, reflecting softer-than-expected first-half performance and its updated assessment of the remainder of the year. The company maintained its operating-margin guidance of 20% to 22%.

Sanghrajka said quarterly growth came in below expectations because of softer volumes, lower-than-anticipated pricing increases and slower discretionary spending, particularly in retail and high-tech. He said competitive intensity has increased in recent quarters, limiting the pricing expansion Infosys had expected at the beginning of the year.

Management said the lower end of its guidance assumes a further deterioration in macroeconomic conditions and pricing, while the upper end assumes improvement. The second half also includes seasonal headwinds from fewer working days.

Infosys said its growth outlook has also been affected by lower revenue from offshoring and by a large European manufacturing deal that it did not pursue because the economics did not meet its return expectations. Management said those two factors combined represented an estimated 1.8% to 2% impact on growth for the year.

Financial services and energy, utilities, resources and services are expected to grow faster than the company average, according to Sanghrajka. Manufacturing faces near-term pressure, including lower revenue from a large client, while retail and high-tech were affected by lower third-party revenues and weaker spending among certain customers.

Margins hold at 21% as AI productivity reshapes commercial discussions

Second-quarter operating margin was 21%, down 10 basis points sequentially. Sanghrajka cited a 70-basis-point headwind from changes in post-sales customer support and a 20-basis-point impact from additional acquisition consolidation. These were partly offset by currency, Project Maximus efficiency measures and higher working days.

For the second half, Infosys expects margin pressure from compensation increases, acquisition-related amortization, seasonally softer revenue, large-deal ramp-ups and continued sharing of AI-driven productivity benefits with clients. Project Maximus initiatives are expected to partly offset those pressures.

Management said clients across industries are increasingly seeking to share in productivity gains from AI, creating pricing pressure in both existing and new contracts. Parekh said the intensity of client productivity expectations has remained broadly similar since the start of the fiscal year, but the trend is reaching more parts of the company’s portfolio as AI adoption expands.

Infosys said it remains selective about contracts where expected productivity commitments exceed its economic-return thresholds. Parekh said the company is focused on realizing measurable productivity benefits rather than relying on assumptions about gains that may emerge years into a multi-year contract.

Cash flow, hiring and dividend

Free cash flow totaled $928 million, equal to 113% of net profit. Infosys ended the quarter with $4.7 billion in cash and cash equivalents and no debt. Earnings per share rose 8.7% year over year to 19.32 Indian rupees.

The board declared an interim dividend of 26 rupees per share, up 13% from a year earlier. Attrition declined to 12.7% from 13% in the prior quarter, while net headcount increased by about 4,400 employees. Infosys hired roughly 13,000 freshers in the first half and said it remains on track to hire approximately 20,000 for the full fiscal year.

Management also said compensation increases for most employees will begin in October, with a second phase scheduled for January.

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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