Infosys Ltd. has raised its annual sales forecast for the first time since early 2023, igniting optimism that emerging trends, particularly in artificial intelligence, may rejuvenate corporate tech spending.
The Bangalore-based tech giant now anticipates a revenue increase of 3% to 4% on a constant currency basis for the fiscal year ending March 2025. This surpasses the average analyst projection of 3.16%, and is an upgrade from its previous forecast of 1% to 3% growth.
This optimistic forecast from Infosys may signal a potential turnaround for the tech industry, offering hope to peers like Accenture Ltd. and International Business Machines Corp. (IBM). Last week, Tata Consultancy Services Ltd. (TCS), Infosys’s larger Indian competitor, also expressed a cautious optimism for the fiscal year ahead.
“Infosys’ results suggest that the demand environment may be stabilizing, potentially marking an inflection point,” noted Anurag Rana, an analyst at Bloomberg Intelligence. “The positive growth in financial services after four quarters is particularly notable and could drive the company’s recovery.”
Following the announcement, Infosys’s US-traded shares surged 8.3%, marking the largest one-day increase in four years. The stock has risen 21% this year, although it remains below its 2022 peak.
While a 4% annual growth rate remains modest by Infosys’s historical standards, it represents a notable improvement from the latter half of the previous fiscal year when revenue growth stagnated. In the first fiscal quarter ending June, Infosys reported a 3.7% increase in sales to 393.2 billion rupees ($4.7 billion), with net income rising about 7% to 63.7 billion rupees, exceeding analysts’ expectations of 62.48 billion rupees.
Investors are now looking to IBM’s upcoming report for further signs that AI advancements and a resilient global economy are stimulating increased tech investments. With inflation easing, there is speculation that the US Federal Reserve might begin cutting rates in September. Bloomberg Economics projects global economic growth of 3% in 2024, up from an earlier forecast of 2.7%.
India’s $250 billion software services sector, led by TCS and Infosys, serves as a key indicator for the global IT industry, catering to a wide range of industries from manufacturing to finance. Infosys reported record large deal wins last quarter, totaling $4.1 billion in contract value.
“We had a strong Q1 performance, particularly in volumes and financial services in the US,” said Infosys CEO Salil Parekh. “Our robust performance in securing large deals provides greater visibility for this fiscal year.” Parekh also highlighted the completion of the acquisition of in-tech GmbH, a German automotive engineering R&D services provider, which contributed to the improved guidance.
As global enterprises seek to modernize their operations to compete with agile startups, companies like Infosys are heavily investing in machine learning, analytics, and cloud computing. Although generative AI is seen as a burgeoning opportunity for outsourcers, firms like TCS caution that it may take time to become a significant revenue stream.
Bloomberg Intelligence Insights
“Infosys raised its full-year guidance beyond expectations, primarily due to the acquisition of in-tech and strong execution despite challenging demand,” Bloomberg Intelligence reported. “It appears client spending has stabilized, especially in the financial services sector, which is encouraging. Although headcount declined in Q1, the rate of decline has slowed and may reverse in the second half of the year.”
