Infosys Cuts FY27 Outlook to 1-2% as AI Hits 10.5% of Revenue

Infosys told investors on Friday to expect constant-currency revenue growth of just 1% to 2% for the fiscal year ending March 2027, cutting its previous 1.5% to 3% range by a full percentage point at the midpoint. The market's response was immediate: American depositary receipts on the NYSE fell 8.5% in premarket trading, and the Bengaluru-listed shares have now dropped about 29% this year.

The guidance cut was widely anticipated, but it landed alongside a number that cuts the other way. Artificial intelligence services accounted for 10.5% of total revenue in the September quarter, up from 8.2% in the June quarter and a 29% jump sequentially — a pace that far outstrips the overall business, which grew 1.5% year over year in constant currency.

What drove the cut?

Chief financial officer Jayesh Sanghrajka attributed the softer outlook to a weak second quarter, soft volumes and pricing pressure. "Our Q2 has been softer and our volume continues to remain softer," he said on the analyst call. "We have also seen pricing pressure on the back of competitive intensity and higher ask on productivity." He also flagged retail and high-tech, where discretionary spending has run below expectations.

Chief executive Salil Parekh framed the AI number as validation of the company's positioning. "As enterprises move to AI adoption at scale, the strong growth in AI revenues is a recognition of our differentiated market positioning and client confidence," he said. The caveat came from Parekh himself: the productivity AI delivers is reducing revenue from traditional services and intensifying price competition as clients demand greater cost savings. That admission explains the arithmetic troubling investors — if AI is growing at nearly 30% a quarter, the drag from the rest of the portfolio must be considerable to leave total growth barely above 1%.

The quarter's numbers

• Revenue: $5.145 billion, up 1.5% YoY in constant currency and 1.2% sequentially; in rupees, up 10.7% to 49,244 crore.
• Net profit: 7,823 crore rupees ($0.20 per adjusted ADR), up 6.2% — below the 8% increase a seven-brokerage poll had predicted.
• Operating margin: 21.0%, flat year-on-year and slightly below the 21.1% of the June quarter; full-year margin guidance unchanged at 20-22%.
• Large deal TCV: $5.2 billion, up 68% YoY, with 62% net new and one mega deal above $2 billion.
• Free cash flow: $928 million, or 113.3% of net profit, though down 15.7% YoY in dollars.

Sanghrajka defended the margin performance: "Focus on cost and operational efficiency measures while making the required investments, have led to stable margins." Second-half pay increases and pricing pressure remain headwinds, partly offset by the Project Maximus cost program. That mega deal only begins ramping in the final quarter of this fiscal year and should add more than 1% to revenue growth next year — limited help for the current outlook.

Where the pressure sits

The vertical breakdown is unambiguous. Life sciences grew 32.5% in constant currency, energy and utilities 7.3%, and communications 4.1%. Financial services, at 28% of revenue, managed 2.1%. High-tech fell 17.3%, retail dropped 7.7%, and manufacturing slipped 0.7%. Geographically, North America — 54.6% of revenue — contracted 1.5%, while Europe grew 4.6% and the rest of the world 10.9%.

Headcount rose by a net 4,480 to 332,542, with voluntary IT attrition easing to 12.7% from 13%. The board declared an interim dividend of 26 rupees per share, up 13%, record date Nov. 3, 2026. New client wins include a 10-year Crocs agreement plus AI-and-cloud collaborations with Knorr-Bremse, Metsä Group, NTN and Telia.

How does Infosys compare?

Among peers reporting the same quarter, Infosys grew faster than Wipro (0.6%) but slower than TCS (2.8%, 24.0% margin, $9.6 billion order book) and HCLTech (2.6%, guidance raised at the low end to 2.5-4%). Infosys was the only one of the four to cut a full-year revenue forecast this quarter. One caveat on the comparison: each company defines deal bookings and margin metrics differently, so the figures are not strictly comparable.

Hitting even the top of the 1-2% range requires a meaningful second-half acceleration, which puts pressure on the mega deals and AI bookings to convert quickly into billed revenue. Management is betting that cost discipline and a steady 21% margin can carry earnings until demand clears; investors, judging by the premarket move, are not yet convinced.