Infosys Q3 preview | Can AI move the needle as demand stays uneven?
Parekh’s tenure has covered many milestones, from the shift to digital services and disruptions caused by the Covid-19 pandemic to a prolonged slowdown in companies awarding billion-dollar technology deals to IT outsourcing providers. But as the company heads towards December quarter (3FY26) earnings, the key test may be how it navigates the rise of automation and generative artificial intelligence (GenAI).
Two years after ChatGPT’s launch, enterprise technology spending has soared, questions are resurfacing about how Infosys plans to adapt its business model to an AI-driven world. While the company’s public commentary has struck a conciliatory tone on the impact of automation, Parekh has been internally reworking Infosys’ AI strategy.
The focus is no longer limited to passing on AI-led productivity gains as incremental benefits to customers. Senior executives have been directed to make the company’s AI offerings enterprise-grade, with an emphasis on solving use cases and performing end-to-end tasks through the Topaz platform.
“One of the main concerns for our Topaz offering was that customers wouldn’t get much from it other than productivity gains. Customers would prefer to bundle Microsoft’s Co-pilot because they would be able to get the entire Microsoft product line with it,” said an Infosys executive familiar with the matter.
Management has taken this feedback to heart and is recalibrating its flagship AI offerings to go beyond improving productivity. This shift is also evident in Infosys’ recent partnership with Cognition, where it plans to deploy AI agents that can handle end-to-end software engineering work for customers rather than just automating discrete tasks.
This strategic rethinking comes against the backdrop of Parekh’s decisive bet on mega-deals (contracts worth over a billion dollars) to secure long-term revenue visibility and outperform peers. Under his leadership, Infosys won eight such deals, more than its rivals in the same period. The company also signed its largest contract ever, an eight-year, $3.2 billion deal with German auto giant Daimler in December 2020.
That deal has since run into difficulties, resulting in a loss of at least $150 million in annual revenue. As Infosys prepares to report third-quarter earnings on December 14, investors will be watching closely to assess how the company plans to fuel growth in the age of artificial intelligence.
Infosys reported that its September quarter (QFY26) revenue rose 2.7% sequentially to $5.08 billion, with net profit at $839 million. Operating margin expanded 20 basis points to 21% as demand remained subdued and management narrowed its revenue growth forecast to 2-3% for FY26.
Mint examines five key talking points.
demand signals
India’s two largest IT services firms, Tata Consultancy Services (TCS) and HCL Technologies Ltd, have recently offered divergent assessments of demand conditions. While TCS said discretionary technology spending is expected to improve, HCLTech struck a more cautious note, indicating continued weakness. Geopolitical tensions in West Asia and reduced demand for IT services could further weigh on sentiment.
In this context, Infosys’ demand comments will be followed closely.
Income levers
In an environment of declining demand, Infosys’ growth will depend on two important developments. The first of these is the acceleration of the $1.6 billion mega deal signed with the UK-based healthcare provider NHS in October last year. The second is Daimler’s loss of revenue. Mint It could offset gains from the NHS contract on 12 January.
As such, the company’s earnings outlook will be closely scrutinized, but at least one brokerage firm expects improvement once U.S. macroeconomic conditions stabilize.
“Infosys has the highest exposure among Indian IT peers in the US market, impacted by uncertainty and volatility in 2025. Going forward, we expect macro-related uncertainty in the US to ease, which will improve US Inc’s decisions on IT budget expansions and discretionary spending,” HSBC analysts Yogesh Aggarwal, Prateek Maheshwari and Sagar Desai said in a note dated January 1.
Infosys generates more than half of its revenue from the United States.
Margin pressures
A key concern for IT outsourcing providers in the third quarter is the one-off impact of India’s new labor laws. TCS and HCLTech allocated $350 million towards one-time expenses related to bonus and provident fund contributions.
Positive currency movements raise expectations for margin expansion, while the possibility of one-off costs and wage increases could put pressure on profitability. Therefore, management commentary on margin trajectories will be critical.
Making money from artificial intelligence
Infosys reiterated its stance on deploying AI agents to augment human tasks. Its partnership with Cognition marks a shift toward billing AI software engineers to handle the entire job, end-to-end.
Unlike peers like TCS and HCLTech, Infosys has so far refrained from disclosing its AI revenue metrics. Investors will seek clarity on the company’s AI strategy, including the cost of deploying these agents, potential revenue growth, and billing mechanisms.
recruitment strategy
Infosys has guided the recruitment of 20,000 new students this fiscal, up from 15,000 last year. However, management stated in an interview with BMO Capital Markets last year that the new requirements would diminish over time.
Infosys’ hiring plans will be closely watched as AI reps increasingly automate entry-level tasks like coding and both TCS and HCLTech cut headcount in the third quarter.
