Indian tech services giant Infosys reported mixed results for its second quarter late last week, revealing that while AI revenue climbed 29 percent sequentially and now accounts for 10.5 percent of total incoming cash, overall year-on-year revenue growth came in at just 1.5 percent. The company faces a paradox where artificial intelligence both sustains its business and erodes pricing power, as clients demand lower fees when automation enters multi-year contracts.
The gap between AI and overall performance highlights the company's struggle to maintain growth. Chief financial officer Jayesh Sanghrajka told investors that "growth was below our expectations," citing softer volume and smaller price increases than anticipated due to intense competition. Infosys won $8.8 billion in new deals during the first half of its financial year, with 68 percent coming from net new customers. But the company's share price has already dropped more than 25 percent over the past twelve months, and Bloomberg reports that investment analysts have downgraded the firm, pointing to weak prospects ahead.
CEO Salil Parekh explained that cost savings from AI are now "baked in" to extended deals, making it harder to preserve pricing. He noted that pricing pressure comes both from competitors and from client expectations around AI productivity, particularly "on large programs" with three- to five-year outlooks. Sanghrajka emphasized the company won't sacrifice margins to win business, targeting a 21 percent margin and citing "a large deal that we walked out of" because it failed to meet return requirements. To protect profitability, Infosys launched "Project Maximus" to identify internal efficiencies and deploy AI-powered sales tools.
The company's outlook dimmed further as it revised full-year revenue guidance downward from 1.5 to 3.0 percent in the first quarter to just 1.0 to 2.0 percent in the second quarter. Sanghrajka acknowledged that retail and high-tech industries have slowed services spending, and noted that the second half of the financial year typically sees weaker performance. Infosys now depends on new AI work to drive revenue growth, even as the same technology makes it harder to grow revenue from existing customers who expect automation-linked discounts. The tension between AI as revenue driver and margin compressor will define whether the firm can return to stronger growth or faces continued pressure from clients who view automation as grounds for permanent fee reductions.