Infosys INFY recently secured a new $1.5 billion deal with an undisclosed global company for a period of 15 years, according to an exchange filing last week. Through this agreement, INFY will provide an array of upgraded digital experiences and operational services based on its platforms and artificial intelligence (AI) solutions.
This marks the company’s second AI deal this month, with the first being a strategic and multi-year collaboration with STARK Group to drive its digital transformation based on Infosys' Topaz, a generative AI-based set of services, solutions and platforms.
In July 2023, INFY signed a $2 billion deal with an existing client, committing to deliver AI and automation services for a five-year duration.
Despite these AI achievements, Infosys is grappling with significant challenges, including a slowdown in digital transformation within the financial and related sectors. Furthermore, this Zacks Rank #4 (Sell) company has encountered delays in several large-scale deals due to drawn-out regulatory approvals and extended transition periods. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of the company have underperformed the Zacks Computer and Technology sector year to date. Shares of INFY have lost 0.3% year to date against the Zacks Computer and Technology sector’s rise of 43%.
Infosys Faces Stiff Competition in the AI Landscape
The AI landscape is filled with big names like NVIDIA NVDA and Microsoft MSFT, which are partnering with Indian information technology (IT) companies that keep the potential of being the direct competitor of Infosys.
Recently, NVIDIA partnered with Indian giants like Reliance Industries and Tata Consultancy Services (“TCS”) to create generative AI based applications.
TCS also partnered with Microsoft to expand its AI capabilities, launch new AI enterprise solutions and provide AI training for its employees. Meanwhile, Wipro WIT, a key competitor of INFY, revealed plans to invest $1 billion in AI over the next three years.
In spite of tough competition and economic challenges, Infosys has found its niche in the AI market. The company sees growing potential for AI in the Retail, Communication and Original Equipment Manufacturing (OEM) sector.
New AI Opportunities Can Spark Fresh Growth for Infosys
In the Retail sector, there is intense focus on AI for accelerating digital transformation, cost efficiency and consolidation.
The Communication sector is facing slow growth due to budget cuts and delayed decision making. Infosys’ clients in this sector are increasingly prioritising cost-saving and vendor consolidation, while seeking innovative AI solutions to boost productivity.
INFY has also observed that its OEM clients are increasingly interested in revenue generation and efficient marketing services and they are turning to AI to optimize their operations.
Infosys aims to capitalize on this AI vacuum. It has reported having completed 80 generative AI projects for clients during the first quarter of fiscal 2024.
The company is also experiencing a surge in demand in areas, such as engineering, Internet of Things, supply chain, cloud computing, ERP and digital services, securing a robust deal pipeline despite the volatile business environment globally.
The latest forecast for worldwide IT spending by Gartner is also favorable for Infosys. Gartner anticipates worldwide spending on IT services to grow 8.8% year over year to $1.42 trillion this year.
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