Infosys (INFY) Falls After $1.5B Global AI Deal Termination
Infosys Limited INFY shares fell 1.7% on Tuesday after the company disclosed in a Securities And Exchange Commission filing that an unnamed global customer terminated an artificial intelligence (AI) contract worth $1.5 billion. However, the India-based IT consulting and outsourcing company didn’t disclose the reasons behind this termination.
Infosys secured the contract in September 2023, which had a deal period of 15 years. Under this contract, INFY was supposed to provide an array of upgraded digital experiences and operational services based on its platforms and AI solutions.
The deal termination comes at a time when Infosys is facing a mixed bag of challenges. Its business is being affected by near-term uncertainties stemming from inflation and higher interest rates. Slow decision-making processes, along with softness in digital transformation programs and discretionary spending in the current uncertain macroeconomic environment, are hurting this Zacks Rank #4 (Sell) company’s volumes.
The ongoing business uncertainties are also weighing on its share price performance. Infosys shares have underperformed the Zacks Computer - IT Services industry year to date (YTD). Shares of INFY have rallied 2.4% YTD against the Zacks Computer - IT Services industry’s rise of 38.1%.
Infosys Limited Price and Consensus
Infosys Limited price-consensus-chart | Infosys Limited Quote
Infosys Boosts AI Offering
Despite the recent setback of losing a mega multi-year contract, we believe that Infosys’ long-term prospects remain bright, considering the huge opportunity from the growing demand for AI-based solutions. The company has been ramping up its AI offerings as the success of OpenAI’s ChatGPT has demonstrated the AI technology’s potential to improve operations in almost every industry.
Additionally, the company is strategically leveraging its AI capabilities at a time when cost efficiency and consolidation are the top priorities for its clients. It has already undertaken more than 90 generative AI projects for clients, as reported during the second-quarter fiscal 2024 earnings conference call.
Infosys’ AI segment is seeing some potential in Retail, Communication and Original Equipment Manufacturer clients, who are focusing on digital transformation, cost saving, operational optimization and automation.
Considering the huge growth opportunity in the AI space, Infosys is continuously focusing on enhancing its Topaz capabilities through partnerships with the likes of NVIDIA Corporation NVDA, Microsoft Corporation MSFT and Alphabet Inc.’s GOOGL Google.
In September 2023, Infosys and NVIDIA expanded their partnership to build generative AI tools for enterprises. The expanded alliance will bring together NVIDIA’s AI Enterprise ecosystem of models, tools, applications and compute infrastructure to Infosys Topaz, which is an AI-first set of services, solutions and platforms using generative AI technologies. The product suite helps amplify the potential of humans, enterprises and communities to tap into the next generation of opportunities.
In the same month, Infosys and Microsoft collaborated to leverage their AI solutions, such as Infosys Topaz, Azure OpenAI Service and Azure Cognitive Service, to develop industry-scale solutions. This collaboration has enabled customers of both companies to transition from digital to AI-based solutions that will enhance the democratization of data and intelligence, boosting productivity and operational efficiency while decreasing the turn-around time.
Later, in October 2023, Infosys and Alphabet’s Google expanded their partnership to help enterprises build AI-powered solutions. The expanded alliance has brought together Google Cloud's generative AI solutions to Infosys Topaz. The integration has helped the Bengaluru, India-based IT consulting and outsourcing company create offerings that customers can adopt and easily integrate generative AI into their businesses. Therefore, this collaboration has enabled the customers to transition from digital to AI-based solutions.
NVIDIA, Microsoft and Alphabet each carry a Zacks Rank #2 (Buy) at present. Shares of NVDA, MSFT and GOOGL have rallied 237.4%, 56.2% and 60.4%, respectively, YTD. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Infosys Continues Winning Contracts
Despite the current challenging macroeconomic environment, INFY is receiving a positive response from its clients for its digital transformation offerings. As clients concentrate on consolidating their vendors, Infosys is reaping the rewards with more robust deals. In the second quarter of 2024, the firm also secured 12 major deals from America.
Most recently, last week, the company secured a five-year contract from LKQ Europe, which will involve the integration of multiple business processes and systems by Infosys that will support LKQ Europe’s Information Technology-related business transformation.
This marks another European deal in the automotive segment for Infosys, following its collaboration with smart Europe GmbH, an automotive brand in the European electric vehicle market, in October 2023. Among Infosys’ other European deals in 2023 are partnerships with Danske Bank, Keytrade Bank, Stark Group, ABN AMRO and ng-voice GmbH. Infosys secured eight massive deals in Europe in the second quarter of fiscal 2024.
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