Buy Infosys Ltd for the Target Rs. 2,150 by Motilal Oswal Financial Services Ltd
Infosys partners with Cognition
More AI-native collaborations likely to follow
* We have argued in our recent upgrade note (Time to buy the next cycle, 24th Nov 2025) that 2026 will be the year when enterprises start deploying AI at scale, and Indian IT services stand to benefit from this. While nearterm demand signals remain choppy, our analysis suggests that the AI services layer is gradually starting to take shape.
* The recent strategic collaboration between Infosys (INFO) and Cognition (Devin) is worth highlighting. Under this partnership, INFO will deploy DEVIN, Cognition’s “AI software engineer”, across INFO’s internal teams and client delivery.
* This development aligns with our earlier view that LLM providers are beginning to formalize the AI services channel through system integrators, setting the stage for a broader AI services inflection in CY26 (see our note dated 16th Dec’25: Investor feedback post upgrade).
* We believe AI-native enterprise apps such as Cognition will greatly benefit from the deeply entrenched client relationships that legacy service vendors have, and this will be a key trigger for revenue recovery for Indian IT services, despite potential disruptions in its legacy time and material coding business. We will closely monitor the new partnership ecosystem, and list recent developments in Exhibits 1 and 2 below.
* Valuation and View: INFO is well placed to benefit from enterprise-wide AI spending, given its discretionary-heavy mix. At the current valuations, upside risks meaningfully outweigh downside risks. We value INFO at 26x FY28E EPS with a TP of INR2,150, implying a 33% upside potential. INFO remains our top pick among tier-1 IT names and we reiterate our BUY rating on the stock
Infosys-Cognition partnership: A primer
* INFO has announced a strategic collaboration with Cognition to deploy Devin, its “AI software engineer”, across its internal engineering teams and global client engagements. The integration combines Devin’s autonomous engineering capabilities with Topaz Fabric, INFO’s agent-ready AI services stack.
What is Cognition and Devin?
* Cognition is an AI-native software company focused on building autonomous coding agents for enterprise use. Its flagship product, Devin, is positioned as an “AI software engineer” rather than a traditional code assistant.
* Unlike copilots that help write snippets of code, Devin is designed to own end-to-end engineering tasks from understanding requirements and writing code to testing, debugging, and maintaining applications. In the layman terms, Devin acts like a junior engineer that can work across large codebases, handle legacy systems, and operate continuously.
A few aspects:
* INFO plans to deploy Devin not only internally but also within customer environments, including as a managed service.
* Delivery model impact: INFO is positioning Devin as part of hybrid delivery pods, where human engineers work alongside autonomous agents. This goes beyond code assistance and into execution, maintenance, and modernization.
* Early use cases include brownfield modernization, tech debt reduction, legacy migrations (including COBOL), and production support areas that are core to large IT services revenue pools.
* The focus on regulated industries (starting with BFSI) and joint development of governance, frameworks, and blueprints suggests this is built for enterprisescale adoption rather than experimentation.
* INFO has indicated that it has already used Devin internally for six months and seen material productivity improvements. Complex migrations, including COBOL and legacy JAVA, have shifted from long, resource-heavy undertakings to streamlined processes completed in a record time. While productivity gains are not new, the move to integrate Devin into client delivery and managed services offerings represents a measured step forward.
AI services: Time to rise?
* In our earlier note dated 24th Nov’25: Time to buy the next cycle, we argued that the key signal to watch was not model capability, but whether LLM providers begin opening structured channel partnerships with SIs, enabling AI to be sold, implemented, and governed at scale.
The Infosys-Cognition partnership resembles this:
* Cognition brings a horizontal agentic engineering platform.
* INFO brings domain depth, enterprise access, and delivery governance.
* The combined offering is positioned as a repeatable service, not a one-off tool deployment.
* This mirrors what we have already seen with OpenAI and Anthropic partnering with Accenture, Cognizant, Deloitte, HCLTech, and others, where the emphasis has shifted toward embedding AI into SDLC, modernization, and managed services (see Exhibits 1 and 2).
* Taken together, these developments suggest the AI services layer is beginning to take operational shape, even if revenue impact remains back-ended.
* We believe AI-native enterprise apps will need the deeply entrenched client relationships that legacy service vendors have in order to scale their solutions, and this will be a key trigger for revenue recovery in the sector.
Our timeline for a turnaround in the sector:
* Discretionary demand remains soft, and most enterprises are still finalizing their CY26 budgets. Here is how we think the next two years will play out:
* 0-3 months (near-term): Furloughs and deal deferrals continue, with clients waiting for 2026 budgets to firm up. Little incremental demand is expected until Jan’26 when planning cycles reset.
* 3-9 months (2HCY26): Enterprises begin scaling up AI services beyond pilots. Deal activity improves, with rising TCVs in application modernization, data engineering, and integration-led work. This marks the first tangible evidence of the transition from hardware to services.
* 2HFY27: AI-related deal conversion begins to show up in revenue. This is also when AI-linked productivity deflation begins to be offset by new AI services work. Large-cap revenue growth rates start improving toward the 6-7% range.
* FY28: AI services move into the full deployment mode. Industry revenue growth rates materially accelerate to 8-9% (vs. 3–4% today) as AI modernization, data workloads, and enterprise integration scale up. This supports a sector-wide rerating as growth visibility improves.
Valuation and view
* We believe CY26 should represent the bottoming of the growth cycle, setting the stage for a more meaningful acceleration in 2HFY27 and FY28 as AI services move into scaled deployment. Among large caps, we prefer INFO and Tech Mahindra, while Coforge and Hexaware remain our top mid-cap picks.
* In this context, we expect INFO’s growth to improve meaningfully in FY27/FY28. We value INFO at 26x FY28E EPS with a TP of INR2,150, implying a 33% potential upside. INFO remains our top pick among tier-1 IT names and we reiterate our BUY rating on the stock.
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