Infosys has lowered its full-year revenue growth guidance for FY27 to 1-2% from the earlier 1.5-3% range. While the company secured $5.2 billion in large deals, management pointed to headwinds from AI-driven productivity gains lowering legacy service revenue and persistent client caution in North America. Operating margins stood at 21%, with upcoming wage hikes expected to keep profitability under pressure.
Infosys has revised its annual revenue growth forecast for the 2027 fiscal year to between 1% and 2% in constant currency. This is a reduction from its earlier guidance of 1.5% to 3%. The move follows a second-quarter performance where the company recorded a sequential revenue growth of 1.2%, bringing total quarterly revenue to $5.14 billion.
Impact of AI on Revenue
The downgrade highlights a structural shift in the IT services sector often called 'AI deflation.' While the company's AI-specific revenue grew by 29% sequentially, now making up 10.5% of its total turnover, these gains come at a cost to traditional business. As clients adopt AI, they are automating tasks that were previously handled by manual legacy services. This efficiency often means the company earns less per project than it did under old service models. Management noted that this transition, combined with continued client caution in North America and weakness in the retail and high-tech sectors, has created a drag on topline growth.
Margins and Operational Costs
Operating margins for the second quarter were 21%, marking a 10-basis-point decline compared to the previous quarter. The company faced a complex cost environment, balancing the impact of customer support expenses and amortization against currency benefits. Profitability remains a key area for investors to track, as the company is set to implement wage hikes in the October and January tranches. These higher costs, combined with a competitive pricing environment, may continue to exert pressure on operating margins in the coming quarters.
Order Book and Headcount
Despite the softer growth outlook, the company’s ability to secure large-scale business remains a potential buffer. Large deal inflows for the quarter reached $5.2 billion, with 62% classified as net new business. This includes a $2 billion mega-deal and a $1 billion renewal agreement. These long-term contracts are expected to provide revenue stability starting from the 2028 fiscal year. Furthermore, after two quarters of contraction, the company reported a net increase in headcount. This shift suggests a strategic move to build capacity for medium-term requirements, even as it balances the immediate friction between legacy business decline and the shift toward AI-native services.
Investors may monitor how effectively the company can convert these large deals into revenue while managing the pace of its legacy business transition. The ability to maintain margins despite upcoming wage hikes and the success of AI-led services in offsetting legacy revenue declines will remain important indicators for the company’s future performance.