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

Indian IT services major Infosys has faced mixed outcomes with the introduction of Artificial Intelligence (AI) into its operations, according to its latest quarterly report. The company's use of AI has led to a 29% increase in AI-driven revenue, accounting for 10.5% of its overall earnings. However, this positive figure contrasts with a 1.5% year-on-year revenue growth for its second quarter.

CFO Jayesh Sanghrajka stated that the growth was below expectations, citing softer volumes and lower price increases than anticipated due to fierce competition. Customers tend to expect lower charges from Infosys when it utilizes AI, which has now become a standard part of its long-term contracts.

AI has also contributed to reducing the service costs for clients, making Infosys' services more cost-effective. CEO and Managing Director Salil Parekh acknowledged that some competitors are intensifying their pricing pressure efforts, but the impact is widespread due to the overall economic environment and discussions around AI productivity.

Despite the challenges, Infosys aims to maintain its margins around 21%, as CFO Sanghrajka emphasized during the earnings call. The company demonstrated this commitment by walking away from a significant deal that did not meet their return expectations.

In an effort to improve efficiency and keep margins intact, Infosys has launched "Project Maximus" to find efficiencies within its operations. The company plans to leverage AI-powered tools to win more sales. According to CFO Sanghrajka, the retail and high-tech industries have witnessed a slowdown in their services spending, which further adds to the challenges ahead for Infosys.

The company tried to reassure investors by highlighting that they have secured $8.8 billion in new deals in the first half of the financial year, with 68% of these being from new customers. However, Infosys has revised its revenue growth predictions from 1.5% to 3% in its Q1 results to 1% to 2% in Q2. Consequently, the company's share price has dropped by over 25% over the past year, and investment analysts have downgraded the firm, expressing concerns about its long-term prospects.