Infosys, global client call off $1.5 billion AI deal, shares fall

Leading Indian information technology services firm Infosys Ltd said that a global company, which it didn’t name, has terminated a $1.5 billion multi-year contract.

On Tuesday, shares of Infosys declined about 2% in intraday trading on the announcement, which was made after trading hours on Friday.

On 14 September, the IT services firm had announced that it had entered into a memorandum of understanding “with a global company to provide enhanced digital experiences, along with modernization and business operations services, leveraging its platforms and artificial intelligence solutions.”

The total client target spend over 15 years is estimated at $1.5 billion, Infosys had announced, while adding that the deal was subject to parties entering into a “master agreement.”

“The global company has now elected to terminate the memorandum of understanding, and the parties will not be pursuing the master agreement,” Infosys said in a note to the exchanges on Friday.

“When you win or lose a deal this big, you traditionally must address the staffing ramp-up or reduction. But in AI deals, there will be less impact because we are now in a world where we are competing with bots, not humans; and the more automation we deliver, the less humans we need,” Ray Wang, chairman and principal analyst of Constellation Research, said in a post on LinkedIn, originally reported in the Times of India.

Large AI deals are getting interesting, Wang said, while adding, “You have to have your data strategy down first,” indicating that for any large AI deal to be successful, the involved parties must have a thorough and well-executed data strategy, failing which the project may face significant challenges, underperform, or fail to deliver its intended value as AI relies on high-quality, relevant, and well-managed data.

The termination of the deal comes against the backdrop of growing global business uncertainties amid climbing challenges for IT companies worldwide.

In its September quarter earnings announcement, Infosys had reported its highest ever deal wins in any quarter despite an uncertain macro-environment.

“We had our highest large deals value at $7.7 billion in Q2 spread across all verticals and geographies. This, in an uncertain macro-environment, is a testament to our ability to pivot and stay relevant to the evolving client needs, by delivering the benefits of transformation as well as productivity and cost savings at scale”, Salil Parekh, chief executive officer and managing director, said in a statement.

“Strong H1 performance with significant large deal wins, builds a solid foundation for the future. The growing adoption of our Generative AI offering, Topaz, is helping us deliver consistent value and expand market share”, he added.

In its September quarterly results announcement, Infosys had listed its recent deal wins, including a $1.5 billion five-year outsourcing deal to grow broadband, video, and mobile communications firm Liberty Global’s digital entertainment and connectivity platform; partnering with Microsoft to democratize adoption of generative AI leveraging Azure OpenAI and Cognitive Services; collaborating with NVIDIA to boost enterprise productivity through generative AI; and a multi-year strategy with STARK Group to advance technology and services across Europe.