Infosys Faces Setback as $1.5 Billion AI Contract with Global Client Terminated

In a significant development, leading Information Technology (IT) giant Infosys revealed on Saturday that it has terminated a high-profile $1.5 billion agreement with an undisclosed global company, specialized in artificial intelligence (AI) solutions. The deal, initially announced on September 14, 2023, for a 15-year period, aimed to leverage Infosys platforms and AI solutions to enhance digital experiences for the global client.

The termination was disclosed through a regulatory filing by Infosys, stating, "This is in continuation to the disclosure made by Infosys vide letter dated September 14, 2023, titled 'company update' with respect to a Memorandum of Understanding with a global company which was subject to parties entering into a Master Agreement." The global company, however, chose to terminate the Memorandum of Understanding, and both parties will not be pursuing the Master Agreement.

While Infosys did not provide reasons for the abrupt cancellation of the project, the development comes less than two weeks after the sudden resignation of the company's Chief Financial Officer (CFO), Nilanjan Roy, who held the position for around six years. The termination of the $1.5 billion contract adds to the challenges faced by Infosys and other IT companies in India, grappling with subdued business over the past three to four quarters.

Infosys had initially signed the Memorandum of Understanding with the global client to enhance digital experiences using Infosys platforms and AI solutions. The $1.5 billion potential target spend was expected to be distributed over a 15-year period. The company had achieved notable success in the July-September quarter, with a 3.17% increase in net profit to ₹6,212 crore compared to the same period last year. However, Infosys had recently narrowed its revenue growth guidance for the full year to 1-2.5%.

The termination of this high-value contract comes on the heels of Infosys winning its highest large deals worth $7.7 billion in the September quarter. The company secured a five-year deal from auto parts distributor LKQ Europe and a $1.64 billion agreement with London-based Liberty Global for a five-year period. Infosys is set to declare its October-December quarter earnings on January 11, 2024.

Despite the setback, Infosys shares settled 1.68% higher at ₹1,562 apiece in the previous session on the Bombay Stock Exchange (BSE). The market will be closely watching Infosys in the coming months to assess how the company navigates the challenges posed by the terminated contract and its implications on the broader IT sector in India.