Infosys cuts guidance on AI deflation, names new CEO
Infosys shares fell after the Indian IT giant trimmed its annual revenue forecast, revealing that artificial intelligence is cannibalizing traditional contracts even as it named a successor to lead the company through the transition.
Shares of Infosys dropped 2.5% to a session low of ₹1,023.30 after the company narrowed its full-year constant currency revenue guidance to 1.5%-3%, down from a previous range of 1.5%-3.5%. The India-based outsourcer simultaneously announced that Ashiss Kumar Dash will take over as Chief Executive Officer and Managing Director in April 2027 for a five-year term.
Underlying the revised outlook was a first-quarter performance that masked stagnant underlying demand. While headline revenue rose 3.9% sequentially to ₹48,211 crore and large deal contract values increased to $3.6 billion, constant currency organic growth was flat. Net profit declined 8.6% sequentially to ₹7,769 crore, despite rising 12.3% year-on-year.
The flat organic growth highlights a structural challenge facing the sector as clients adopt generative AI. Elara Securities noted that AI revenues grew at a 22% compound quarterly growth rate over the last two quarters, but traditional revenues fell by 1.6%. The brokerage pointed to an unexpected client contract termination, unplanned offshoring, and heightened client productivity as immediate drags on the quarter.
The selloff extends a brutal year for the stock, which has lost 33% over the past 12 months and 38% over six months, hitting a 52-week low of ₹984 earlier this month. Elara downgraded the shares to "accumulate" from "buy" and slashed its target price to ₹1,150 from ₹1,530. "The steep cut in organic growth guidance... is concerning along with contract termination by a client," the brokerage stated, adding that it cut its valuation multiple to 15 times earnings from 19 times to align it with rival Tata Consultancy Services due to their now-similar growth profiles.
Motilal Oswal maintained its "buy" rating with a target of ₹1,170, representing a 12% upside. However, the brokerage trimmed earnings estimates by roughly 2%, noting that while AI revenue scales up, "productivity pass-through on the existing book of business will remain a near-term headwind."
The leadership transition aims to steady the ship during this technological shift. Chairman Nandan Nilekani said, "Our industry is entering a period of considerable change. The board was clear that our next CEO needed to combine the ability to drive bold transformation with the judgment to preserve the values and customer trust that have always distinguished Infosys."
