Infosys cut its revenue growth forecast for fiscal 2027 to 1-2 percent on Friday, a steeper trim than most analysts had expected, as weak demand in North America and a shift in client spending toward artificial intelligence weighed on India’s second-largest IT services firm.
The company had earlier guided for growth of 1.5-3 percent. Most analysts had expected Infosys to trim only the upper end of the range to 2.5 percent. US-listed shares of the company fell 7.5 percent in premarket trading after the announcement, a sign of how far the cut fell short of expectations. The wider-than-expected revision caught the market off guard: analysts had braced for a trim to the top end of the range, not a cut to both ends, and the premarket slide reflected that surprise.
North America drags Infosys growth
Revenue from North America, which accounts for more than half of Infosys sales, fell 1.5 percent in the second quarter, its weakest performance in two years. Clients in the hi-tech and retail sectors scaled down projects in the region, and the slowdown showed up directly in the company’s top line.
Gaurav Vasu, founder of market intelligence firm UnearthInsight, said the numbers “indicate that demand hasn’t picked up in the North America market as tech spend moves towards AI players.” He added that the region could remain a laggard for two to four quarters, suggesting the weakness is not about to reverse quickly. The remark points to where technology budgets are going: as enterprise spending moves toward AI players and AI-led projects, traditional services work faces tougher competition for each dollar of client spend.
The North America slowdown matters disproportionately for Infosys because the region contributes the bulk of its revenue. When its largest market shrinks, the company has to find growth elsewhere to meet even a lowered forecast.
Pricing pressure behind the Infosys guidance cut
Chief financial officer Jayesh Sanghrajka pointed to pricing as a second drag. Speaking on a conference call, he said: “Our Q2 has been softer and we are seeing pricing pressure on the back of competitive intensity and higher ask of passing (on) (AI-led) productivity, which are baked in our revised guidance.”
The comment lays out the squeeze the company faces. Clients want the productivity gains that AI tools promise, and they want those gains reflected in lower bills. Infosys has factored that pricing pressure into its revised forecast, which is why the new range sits well below what analysts had penciled in.
Infosys Q2 numbers beat on revenue, miss on profit
The quarterly numbers themselves were mixed. Overall revenue rose 10.7 percent to 492.44 billion rupees ($5.19 billion), marginally ahead of the analysts’ estimate of 491.32 billion rupees compiled by LSEG. Net profit rose 6.2 percent to 78.23 billion rupees but missed the expected 79.29 billion rupees.
Deal wins were the bright spot. Large deal signings jumped to $5.2 billion from $3.1 billion a year earlier, a rise of nearly 68 percent, even as clients pushed for lower prices on the work being delivered.
AI disruption across Indian IT
The $315 billion Indian IT sector is grappling with disruption from AI as clients seek productivity gains and lower prices and redirect spending toward AI projects, pressuring the traditional outsourcing model. The pressure comes from two sides: clients want vendors to pass on AI-led productivity gains in the form of lower bills, while directing a growing share of their budgets to AI projects themselves. For Infosys and its peers, the task is to sell AI-led services fast enough to offset the pricing squeeze on conventional contracts.
The forecast cut is the latest sign that the industry’s recovery is taking longer than expected. With North America expected to stay soft for two to four more quarters, the company heads into the second half of the fiscal year with its growth outlook reset to 1-2 percent. The revised forecast will now be tested against how quickly its record deal wins convert into revenue.