Infosys cuts forecast as AI spending shift deepens North America slowdown

BENGALURU, Oct 23 Reuters) - Infosys cut its annual revenue growth forecast on Friday as weakness in its key North American market deepened, underscoring how AI is disrupting the traditional IT services industry.

The news sent US-listed shares of India's No. 2 IT firm down 7.5 per cent in premarket trading.

The $315 billion-worth IT sector has been grappling with disruption from AI as clients seek productivity gains, push for lower prices and redirect spending toward AI-related projects.

While the technology is creating new revenue opportunities, it is also pressuring the traditional outsourcing model by linking fees increasingly to outcomes and productivity rather than billable hours.

Infosys cut its fiscal 2027 revenue growth forecast to 1 per cent-2 per cent from 1.5 per cent-3 per cent, while most analysts had expected it to trim only the upper end of the range to 2.5 per cent.

This "indicates that demand hasn't picked up in the North America market as tech spend moves towards AI players," said Gaurav Vasu, founder of market intelligence firm UnearthInsight.

North American firms continue to steer spending toward AI, cloud services and US-based AI startups, weighing on traditional IT providers, Vasu said, adding the region could remain a laggard for the next two to four quarters.

"Our Q2 has been softer and we are seeing pricing pressure on the back of competitive intensity and higher ask of passing (on) (AI-led) productivity, which are baked in our revised guidance," CFO Jayesh Sanghrajka said in a conference call.

Hi-tech and retail clients in North America scaling down their projects weighed on the region's performance, he added.

Revenue from North America, which contributes more than half of Infosys' sales, fell 1.5 per cent in the second quarter, its weakest performance in two years.

Overall revenue rose 10.7 per cent to 492.44 billion rupees ($5.19 billion), marginally ahead of analysts' estimate of 491.32 billion rupees, according to LSEG data.

Excluding currency movements, revenue was up 1.5 per cent.

Net profit rose 6.2 per cent to 78.23 billion rupees, but missed analysts' expectation of 79.29 billion rupees.

Deal wins jumped to $5.2 billion from $3.1 billion a year earlier.