Infosys Earnings Call: AI Deals Lift Growth Outlook

Infosys ((INFY)) has held its Q3 earnings call. Read on for the main highlights of the call.

Infosys Lifts Growth Outlook as AI Deals and Cash Flow Shine Despite One-Off Hit

Infosys’ latest earnings call carried an overall upbeat tone, with management leaning into upgraded revenue guidance, strong large-deal momentum and powerful cash generation. Executives acknowledged some near-term margin noise from a sizeable one-time labor-code charge, seasonal furloughs and lower utilization from a surge in trainee intake, but argued these are transitory. The dominant message was that AI-led demand, healthy win rates—highlighted by a major U.K. National Health Service (NHS) contract—and disciplined execution are positioning Infosys for a more constructive growth phase, even as pockets like retail and parts of North America remain soft.

Revenue Growth and Upgraded Guidance

Infosys reported modest top-line progress, with Q3 revenue up 0.6% sequentially and 1.7% year-over-year in constant currency. While those growth rates are hardly blistering, management’s decision to raise full-year revenue guidance to 3.0%–3.5% in constant currency signaled rising confidence that demand is stabilizing and may be re-accelerating in key accounts. The operating-margin guidance band was left unchanged at 20%–22%, suggesting room to grow revenues without sacrificing profitability. For investors, the combination of upgraded growth expectations and intact margin targets points to a more favorable risk-reward backdrop than in recent quarters.

Strong Large Deal Wins

Large deals were a standout, with Infosys signing $4.8 billion of contracts across 26 engagements, 57% of which were net new. The crown jewel was a roughly $1.6 billion agreement with the U.K.’s National Health Service, centered on AI-driven healthcare transformation and long-term digital modernization. This not only boosts medium-term revenue visibility but also signals Infosys’ growing credibility on complex, mission-critical programs in regulated sectors. The breadth and net-new skew of the deal flow suggest that the company is taking share in a cautious spending environment, which should underpin future growth as these wins ramp into revenues.

Solid Profitability and Cash Generation

Despite accounting noise from regulatory changes, Infosys underlined its profitability and cash discipline. Adjusted operating margin was cited at around 21.2%, with the nine-month margin running at roughly 21%, comfortably within the guided range. Free cash flow in the quarter reached a robust $915 million, underscoring the business’s ability to convert earnings into cash even amid modest revenue growth. This cash engine provides flexibility for shareholder returns, continued investment in AI capabilities and talent, and balance-sheet resilience should macro conditions turn less friendly.

Material AI Momentum and Capabilities

AI was a central theme, with management emphasizing that Infosys is now working on AI initiatives with about 90% of its 200 largest clients. The company is executing roughly 4,600 AI projects, has generated more than 28 million lines of AI-assisted code, and has built over 500 AI agents. It introduced Topaz Fabric agent services and highlighted six AI-led value pools that it intends to systematically target for incremental revenue. For investors, this scale of AI activity indicates that the technology is moving beyond experimentation into real deployments, potentially creating a multi-year growth vector and higher-value, stickier client relationships.

Investment in Talent and Capacity Building

Infosys is making an explicit bet on future demand, particularly in digital and AI services, by stepping up talent investments. The company has already onboarded about 18,000 freshers and is on track toward a 20,000 campus-hire target for the year. It is also scaling forward-deployed engineering teams and rolling out specialized hiring and compensation models for AI engineers. While these investments temporarily weigh on utilization and margins, they are aimed at ensuring the firm has the right skills and capacity when demand strengthens, especially in high-growth, high-margin AI and cloud transformation work.

Margin Expansion Drivers Identified

Stripping out one-offs, Infosys delivered a roughly 20-basis-point sequential expansion in adjusted operating margin. Management cited currency tailwinds of about 40 basis points and benefits from “Project Maximus”—a program focused on value-based selling and automation—contributing around 50 basis points. This indicates that beyond cyclical and regulatory factors, structural levers such as improved pricing, mix, and productivity are helping sustain and gently improve profitability. For equity holders, these identified drivers suggest that margin support is not purely cost-cutting, but tied to a higher-quality, more automated delivery model.

Labor Code One-Time Charge and Ongoing Impact

A key negative in the quarter was a one-time impact of INR 1,289 crore stemming from changes in the Indian labor code, which the company has fully accrued through the end of December. Management described this as largely a non-recurring adjustment but cautioned that it will leave a modest ongoing drag on margins—roughly 15 basis points annually. While this regulatory hit clouds reported numbers in the short term, the quantified and relatively small ongoing impact helps investors frame the issue as manageable rather than structurally damaging to the business model.

Reported Margin Volatility and Near-Term Headwinds

On a reported basis, operating margin showed some volatility, with a noted sequential dip to around 20.8% as discussed during the call. The slippage was tied to seasonal furloughs and fewer working days, higher accrued variable pay, and various one-offs that masked underlying margin improvements. Management’s message was that the core margin trajectory is stable to slightly positive once these elements are stripped out. Nonetheless, near-term margin bumps are likely to persist as the company balances investments in people and AI with the realities of a still-mixed demand backdrop.

Softness in Certain End Markets and Geographies

Demand remains uneven across sectors and regions. Retail continues to be a softer spot, with clients focusing on cost containment and selective spend, while North America recorded sequential constant-currency degrowth. Management attributed the weakness in North America to client and industry mix rather than a single large issue, implying a more gradual, diversified headwind. For investors, this underscores that while the macro picture is improving in some areas, Infosys is not yet in a broad-based up-cycle, and stock performance will likely depend on how quickly these lagging segments stabilize.

Lower Utilization Due to Trainee Intake

Utilization, including trainees, fell by about 1 percentage point as Infosys brought in large cohorts of freshers and expanded training and capacity-building initiatives. This short-term productivity drag is a deliberate trade-off: the company is absorbing near-term cost and inefficiency to create a deeper bench for future growth, especially in specialized digital and AI skill sets. While lower utilization can pressure margins and earnings in the immediate term, it positions Infosys to respond swiftly when discretionary spending and project ramp-ups accelerate.

Visa and H‑1B Uncertainty

The call also touched on ongoing uncertainty around U.S. visa and H‑1B processes, including a recent case where an Infosys employee was denied entry and returned. Management emphasized that no employees had been apprehended, but acknowledged that the visa environment remains fluid and could affect deployment and delivery models in the U.S. market. For investors, this serves as a reminder that regulatory and immigration risk still hangs over global IT services firms, potentially influencing onshore-offshore mix, costs, and speed of execution.

Forward-Looking Guidance and Outlook

Looking ahead, Infosys raised its full-year constant-currency revenue growth guidance to 3.0%–3.5% while maintaining operating-margin guidance at 20%–22%. Management pointed to the $4.8 billion large-deal TCV, the $915 million in quarterly free cash flow, and the scaling of AI engagements—4,600 projects and more than 500 agents—as key pillars supporting this outlook. They reiterated that currency and initiatives like Project Maximus should continue to support margins, even as the labor-code changes create a small ongoing drag. With around 18,000 freshers already onboarded and AI capabilities expanding, Infosys is positioning itself for a potential cyclical upturn, though it signaled that more color on strategy and margins will be shared at its upcoming Investor Day.

In summary, Infosys’ earnings call painted a picture of a company leaning into growth, particularly in AI and large digital transformation deals, while managing through short-term margin noise and mixed demand in certain verticals and geographies. Upgraded revenue guidance, strong large-deal wins and hefty free cash flow were the key positives, offset by regulatory charges, lower utilization and sector-specific softness. For shareholders and prospective investors, the call reinforced a constructive medium-term story grounded in AI-led differentiation and disciplined execution, even as some cyclical and regulatory clouds linger at the margins.