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

Indian technology services titan Infosys has presented a duality of AI's impact on its growth. The company announced that its AI revenue grew by 29 percent sequentially, constituting 10.5 percent of its incoming cash. This is a marked improvement from the 1.5 percent year-on-year revenue growth reported in the second quarter. CFO Jayesh Sanghrajka disclosed to investors that growth was below expectations, citing softer volume and lower-than-anticipated price increases amidst intense competition.

AI usage has led to a decrease in pricing, which is now factored into long-term deals. CEO Salil Parekh attributed the falling cost of services to AI, stating that peers are also feeling pricing pressures. However, AI is also making it challenging to continue revenue growth from existing clients. Infosys maintains its target margins around 21 percent and effectively communicated this by citing a deal that was abandoned due to unmet return expectations.

To maintain margins, the firm is undertaking 'Project Maximus' to identify operational efficiencies, with AI-powered tools included in its strategy. The outlook is daunting, as Sanghrajka noted the retail and high-tech sectors are slowing their services spending, with the second half of the fiscal year typically being slow for the company.

The company tried to reassure investors by highlighting $8.8 billion in new deals in the first half of the fiscal year, 68 percent of which were from new customers, as an indicator of strong fundamentals. However, the company also offered a more subdued forecast for its future, revising its Q2 revenue growth prediction to 1.0 to 2.0 percent, down from the previously anticipated 1.5 to 3.0 percent.

Infosys's share price has not plummeted following this news but has already declined over 25 percent over the last year, and investment analysts have downgraded the company, suggesting poor prospects.