Yahoo Finance Infosys Outlook Boost Fuels Hopes AI Will Spur Tech Spending
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Infosys Ltd. raised its annual sales forecast for the first time since early 2023, reflecting growing hopes that emergent trends such as AI may help reverse a years-long slump in corporate tech spending.
Revenue will increase 3% to 4% on a constant currency basis in the fiscal year through March 2025, Infosys said Thursday. That compared with the average analyst estimate of 3.16%. Bangalore-based Infosys had previously projected 1% to 3% growth.
The forecast may raise hopes among peers from Accenture Ltd. to International Business Machines Corp. that an industry malaise may soon be over. Infosys’s larger Indian rival Tata Consultancy Services Ltd. last week expressed optimism about a better fiscal year, though it remained cautious about a sustained growth momentum.
“Infosys’ results suggest that the demand environment may be stabilizing, and could represent an inflection point,” Anurag Rana, an analyst at Bloomberg Intelligence, said in a report. “Positive growth in financial services after four quarters stood out most and will likely be the main acceleration engine for the company’s turnaround.”
Shares of Infosys jumped as much as 4.9% in Mumbai trading for their biggest intraday gain since January. The stock has climbed 17% this year, but remains below its 2022 highs.
While 4% annual sales growth would still be historically low for Infosys, it’s an improvement from the second half of last fiscal year when revenue barely budged. For the first fiscal quarter through June, sales rose 3.7% to 393.2 billion rupees ($4.7 billion), while net income climbed about 7% to 63.7 billion rupees. Analysts expected 62.48 billion rupees on average.
When IBM reports earnings next week, investors are looking for more signs that technologies such as artificial intelligence and a resilient global economy are encouraging companies to pick up tech investment. With inflation gradually slowing, traders are betting the US Federal Reserve will begin cutting rates in September. The global economy is set to expand 3% in 2024, more than the 2.7% projected earlier this year, according to Bloomberg Economics.
India’s $250 billion software services industry, led by TCS and Infosys, is a bellwether for the global IT sector as its customers comprise virtually all industries from manufacturing to finance. Infosys said its large deal wins last quarter hit a record with a total contract value of $4.1 billion.
“We had a strong performance in Q1 on volumes as well as financial services in the US,” Chief Executive Officer Salil Parekh told a news conference. “Second, we had a very strong performance on large deals in Q1, which gives us more visibility into this financial year.” Infosys also completed the acquisition of in-tech GmbH, a German automotive engineering research and development services provider, which helped in the guidance, he said.
Companies such as Infosys are betting big on machine learning, analytics and cloud computing to boost revenue as global enterprises try to transform legacy businesses to compete with nimble startups. Generative AI is also emerging as a new bright spot for outsourcers around the world, though some like TCS say AI will take some time to become a significant revenue stream.
What Bloomberg Intelligence Says
“Infosys raised full-year guidance more than expected, driven mostly by the acquisition of in-tech and strong execution despite challenging demand. It appears that client spending has stabilized and not worsened, particularly in the financial services sector, which is a good sign. Headcount declined again in 1Q, but the pace of decline was lower than in previous quarters, and could reverse in 2H.”
- Anurag Rana & Andrew Girard, analysts
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(Updates with stock reaction in fifth paragraph.)
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