Infosys (INFY) Q2 2027 earnings review
Infosys signs big AI deals, but cuts its sales plan
Infosys, the Indian IT consulting and software services group, is winning big artificial intelligence and outsourcing contracts while its older tech services shrink. Constant currency sales grew 1.5% from a year ago, and chief executive Salil Parekh said AI services jumped 29% from last quarter, yet management cut the full-year growth plan for a second straight time. By our math, the new 1% to 2% full-year outlook points to growth slowing to about 1% in the second half.
| Constant currency revenue growth | +1.5% from a year ago (down from +2.4% in Q1) |
|---|---|
| Sales from businesses owned a year ago | -0.2% from a year ago in constant currency, by our math |
| AI share of revenue | 10.5% up from 8.2% last quarter (+29% QoQ) |
| Full-year revenue growth outlook | Cut to 1%–2% prior 1.5%–3.0% in constant currency |
⚖️ Verdict: 🔴 Bearish
The story got worse because rapid AI adoption and $5.2 billion in large contract signings are not lifting total revenue. By our math, sales outside AI fell about 1% from last quarter, and stripping out recent acquisitions leaves full-year sales from businesses owned a year ago roughly flat to slightly down. On the bright side, cost cuts kept operating margin steady at 21% ahead of second-half employee pay raises.
The question now is whether AI services and large contract wins will eventually add to total sales or merely replace older work at lower prices. If they add, total revenue growth will pick up as the $16.8 billion in recent large deals ramps up; if they replace, overall growth will stay near 1% even as AI's share climbs. Next quarter's constant currency sales growth alongside the AI revenue share will show which force is winning.
🐂 Bull Case
Large Deal Signings Reach $5.2 Billion
Infosys tracks large customer contracts through total contract value (TCV), the multi-year value of big deals signed in the quarter. Chief executive Salil Parekh highlighted a "mega deal of over $2 billion" as clients consolidate tech vendors and hand out complex transformation work. The IT services group also signed a ten-year agreement with footwear maker Crocs and expanded its work with Finnish forestry group Metsä.
- Large deal signings: $5.2 billion, up 68% from a year ago and 44% from last quarter
- New business share: 62% of large deal value, or about $3.2 billion by our math
- Trailing four-quarter signings: $16.8 billion, up 40% from the prior four quarters by our math
The surge in contract signings shows that big companies still pick Infosys when they consolidate IT suppliers. Because large transformation contracts spread revenue over many years, as Parekh explained last quarter, these signings did not stop management from cutting this year's sales plan.
What to watch: constant currency revenue growth in the first quarter of fiscal 2028. A rise above 3% would show that this year's $16.8 billion in large contracts is finally adding to top-line growth rather than just replacing expired work.
Lower Delivery Costs Kept Operating Margin Steady
Infosys has relied on Project Maximus, its internal cost-cutting and pricing programme, to protect profitability while sales growth slows. "Focus on cost and operational efficiency measures while making the required investments, have led to stable margins," finance chief Jayesh Sanghrajka said. Operating margin held at 21.0%, matching the prior year and sitting in the middle of the company's 20% to 22% full-year target.
In the income statement, the cost of making and delivering services fell by 0.3 percentage points of revenue from a year ago, to 68.9% by our math. That saving paid for a 0.3 percentage point rise in administrative overhead, which reached 5.0% of revenue. Holding the margin steady before the second-half pay raises gives the Indian tech group a cushion for the rest of the year.
What to watch: third-quarter operating margin after the October employee pay raises take effect. A reading at or above 20.5% would show that Project Maximus and currency tailwinds can absorb the wage cycle without squeezing full-year profit.
🐻 Bear Case
Traditional Services Shrink While AI Revenue Grows
"Our AI revenue was at 10.5% and grew 29% quarter-on-quarter," chief executive Salil Parekh said. Infosys sells artificial intelligence services to help big companies automate software coding, supply chains and customer support, and supporters view this growing share as the company's main growth engine. The company also highlighted new AI projects with snack maker Mondelez, braking systems maker Knorr-Bremse and telecom operator Telia.
- AI revenue: about $540 million in the quarter by our math, or 10.5% of total sales, up from 8.2% last quarter
- Total revenue: $5,145 million, up 1.2% from last quarter in constant currency (1.2% as reported)
- Revenue outside AI: about $4,605 million, down 1.3% from last quarter by our math
Parekh's headline growth number cuts against the total results because the other 89.5% of the business went backward. While AI sales added about $124 million from last quarter by our math, total revenue rose by only $63 million, meaning traditional IT services shrank by $61 million. Either AI automation is lowering the price of existing contracts, or Infosys is relabelling older work as AI.
What to watch: total constant currency revenue growth alongside AI's share of sales in the third quarter. If AI's share rises again while total growth stays near 1%, AI is cannibalising legacy contracts rather than adding net new spending.
Full-Year Revenue Plan Cut for a Second Quarter
Infosys measures its core top-line target in constant currency, which strips out exchange-rate swings. For the second quarter in a row, the company cut its full-year constant currency sales growth plan, lowering the range from 1.5%–3.0% to 1.0%–2.0%. First-half sales grew 1.9% from a year ago, after second-quarter growth slowed to 1.5% from 2.4% in the first quarter.
The cut is worse than the headline looks because the forecast includes two first-quarter acquisitions, US healthcare tech firm Optimum Healthcare IT and insurance tech provider Stratus Global. Management said last quarter that those two deals add about 1.7% to this year's sales, while goodwill and intangibles on the balance sheet rose to $2,013 million from $1,576 million in March. Stripping out that 1.7% contribution leaves underlying sales from businesses owned a year ago down about 0.2% at the middle of the new plan by our math, as a large European manufacturing contract winds down in December.
What to watch: whether third-quarter constant currency sales growth holds above 1.1% from a year ago, the second-half average implied by the full-year outlook. A reading below 1.1% would put even the lowered 1.0%–2.0% target at risk.
Risks this quarter didn't answer
Three standing concerns could not be tested because the supplied press release omits the quarterly fact sheet and conference call remarks.
- Retail and Communications segments: both trailed company growth in recent quarters; the Q2 fact sheet's industry breakdown will show if spending in those verticals stabilised.
- Pricing on contract renewals: management previously noted softer pricing and aggressive competitor bids; the call transcript will show whether billing rates fell further.
- Chief executive transition: insider Ashiss Kumar Dash takes over from Salil Parekh on April 1, 2027; investors still await details on any strategy changes under Dash.
👓 Other Themes
Customers Delay Discretionary Projects Amid Economic Uncertainty
Corporate IT buyers remain cautious across the industry, favouring cost-saving contracts over discretionary tech upgrades. Finance chief Jayesh Sanghrajka noted that the company operated "amidst heightened volatility" during the second quarter. Client announcements in the release echoed that caution, with footwear maker Crocs and Finnish group Metsä signing deals focused on reducing IT costs and simplifying operations rather than expanding headcount.
💲 Other KPIs
Free cash flow — cash left from operations after capital spending — fell 15.7% from a year ago, when tax refunds boosted collections to $1,101 million. Even with the drop, cash generation stayed above net profit at 113.3% of earnings, following 116.5% in the first quarter and 90.6% in the fourth quarter.
Unbilled revenue — work Infosys has completed for clients but not yet invoiced — rose 7.8% from March 2026 ($1,816 million) by our math, outpacing six-month reported sales growth of 2.1%. Trade receivables moved the other way, edging down 2.2% from March to $3,634 million as the finance team collected billed invoices faster.
Liquid cash and short-term investments climbed from $3,124 million in the first quarter as operating cash rolled in, but remain 20.5% below the $5,005 million held a year ago by our math after last year's share buyback and first-quarter acquisitions. The board raised the interim dividend by 13% from last year to ₹26 per share.
🔮 Guidance
Cut. Management lowered the middle of the full-year constant currency growth plan by 0.75 percentage points to 1.5%. With first-half sales up 1.9%, the outlook leaves about 1.1% growth for the second half by our math, down from 1.5% in the second quarter. This is the second cut in two quarters: the midpoint moved down 0.25 points in Q1 and 0.75 points in Q2.
Unchanged. The plan keeps the full-year operating margin target at 21.0% at the middle of the range. With the first half landing at 21.0%, the outlook implies about 21.0% for the second half by our math despite employee pay raises starting in October and January. Infosys has finished inside this 20% to 22% band for the last two fiscal years, making the target achievable.
❓ Key Questions
Why is non-AI revenue shrinking while AI grows 29%?
AI revenue rose to 10.5% of the total, which implies the remaining 89.5% of the business shrank by 1.3% from last quarter by our math. How much of this drop comes from AI productivity discounts on renewals versus reclassifying existing work?
What is full-year underlying growth without the new acquisitions?
The company cut its full-year constant currency sales outlook to 1%–2%, which still includes about 1.7 percentage points from Optimum Healthcare IT and Stratus Global. Is underlying revenue from businesses owned a year ago now shrinking for the full year?
When does the $2 billion mega deal start billing?
Large deal signings reached $5.2 billion with 62% net new work, yet the second-half sales outlook implies growth slowing to about 1.1%. What is the contract length and ramp-up schedule for the $2 billion mega deal?
Where did employee utilization and graduate hiring land in Q2?
The press release does not include the quarterly fact sheet metrics for employee utilization, headcount or progress toward the 20,000 college graduate hiring plan. How many graduates joined in the second quarter, and how much margin buffer remains in utilization ahead of the October pay raises?