Infosys Ltd. (NYSE:INFY) stock fell Friday after the Indian IT services company reported weaker-than-expected second-quarter fiscal 2027 earnings and revenue and lowered its full-year sales outlook amid softer demand and pricing pressure.
Revenue rose 1.3% year over year to $5.15 billion, missing Wall Street's consensus estimate of $5.19 billion. Revenue increased 1.5% in constant currency and 1.2% sequentially.
Earnings of 20 cents per share were unchanged from a year earlier and missed analysts' estimate of 21 cents.
Large Deals Grow, Margins Hold Steady
Infosys secured $5.2 billion in large deals during the quarter, including two mega deals. Its operating margin remained stable at 21%.
The company generated $928 million in free cash flow, down 15.7% year over year, representing 113.3% of net profit.
Infosys held $2.54 billion in cash and cash equivalents and $1.44 billion in current investments at the end of September.
The board declared an interim dividend of 26 Indian rupees per share, up 13% from a year earlier.
AI Revenue Jumps 29% Sequentially
During the earnings call, CEO Salil Parekh said artificial intelligence accounted for 10.5% of total revenue, with AI-related sales rising 29% sequentially.
Demand continues to grow across AI agents, legacy modernization, process automation and data services. Infosys is expanding its AI capabilities through its Topaz Fabric platform and partnerships with leading AI model developers.
However, Parekh acknowledged that AI is also putting pressure on Infosys' traditional services revenue. While AI creates new business opportunities, the productivity gains it delivers are reducing revenue from existing work and intensifying pricing competition as clients demand greater cost savings.
Parekh also identified cybersecurity as a major growth opportunity as AI adoption introduces new security risks for businesses.
$2 Billion Deal Offers Growth Visibility
Infosys signed a new deal worth more than $2 billion during the quarter. Management expects the contract to contribute more than 1% to revenue growth in the next fiscal year.
Parekh said global capability centers are another growth opportunity as companies modernize existing operations with AI or establish AI-focused centers.
Infosys Cuts Revenue Growth Outlook
Infosys lowered its fiscal 2027 constant-currency revenue growth forecast to 1%-2% from 1.5%-3%, citing cautious client spending amid geopolitical uncertainty, elevated energy costs and inflation.
The company maintained its operating margin outlook of 20%-22%.
Infosys also reduced its full-year revenue forecast to $20.36 billion-$20.56 billion from $20.46 billion-$20.76 billion. Analysts expect revenue of $20.397 billion.
CFO Jayesh Sanghrajka attributed the weaker outlook to slowing project volumes, pricing pressure and growing client demands for productivity improvements.
Retail and high-tech spending remained weak, while financial services, energy and utilities, and manufacturing showed greater resilience.
AI Disruption Adds Pressure to Traditional IT Services
Parekh said Infosys would remain selective about new contracts, prioritizing profitability as AI-driven productivity gains intensify pricing competition.
Management said its Project Maximus efficiency initiative continues to support margins while allowing investment in AI, sales and talent.
The broader IT outsourcing industry faces growing uncertainty as AI tools automate coding and other tasks traditionally handled by large engineering teams.
Last week, Infosys Chairman Nandan Nilekani pushed back against concerns that AI would eliminate jobs on a large scale. He argued that the technology would increase demand for skills involving client relationships, collaboration and coordination, Bloomberg reported Friday.
Infosys shares have lost about 30% this year as investors assess slowing technology spending and the impact of AI on traditional outsourcing models.
INFY Price Action: Infosys shares were down 4.43% at $12.63 at the time of publication on Friday, according to market data.
