Wipro margin falls to 16% on AI spend despite $1.6bn deal wins
Wipro reported a slight year-over-year revenue increase in the first quarter but saw operating margins contract to 16% as it absorbs wage hikes and artificial intelligence investments, signaling a transition period for the IT services giant.
Wipro posted $2.61 billion in IT services revenue for the first quarter of fiscal 2027, a 0.9% year-over-year increase in constant currency. However, revenue fell 1.2% sequentially, and operating margins for the segment contracted by 1.2 percentage points to 16.0%.
Chief Financial Officer Aparna Iyer attributed the margin compression to March 1 salary increases, the upfront costs of ramping up large deals, and ongoing investments in artificial intelligence. These expenses were partially offset by rupee depreciation and internal operational efficiencies. In reported currency terms, the sequential revenue drop was 1.4%.
The company is aggressively pivoting toward AI, anchoring its strategy around $1.6 billion in large deal bookings during the quarter. For investors, the critical question is whether these AI-led contracts can eventually restore margins that are currently under pressure from wage inflation and transition costs.
Chief Executive Officer Srini Pallia noted that technology spending has not slowed, but client focus has narrowed heavily to AI, data, cloud, and cybersecurity. "Spending today is measured with more rigor and longer decision cycles," Pallia said. He argued that this disruption is expanding the market rather than shrinking it.
Geographic and sector demand underscored this uneven corporate appetite for IT services. Europe and the Asia Pacific, Middle East, and Africa regions grew, while the Americas remained soft. Banking, financial services, and insurance along with technology and communications showed relative strength. Conversely, healthcare and energy, manufacturing, and resources experienced weakening demand.
Underlying profitability metrics showed slight improvement, with net income rising 0.6% year over year to INR 33.6 billion and earnings per share reaching INR 3.2. Operating cash flow was a robust 98% of net income, and Wipro ended the quarter with $4.3 billion in gross cash. The company's effective tax rate ticked up to 22.6% from 21.6% a year earlier.
Despite the strong deal pipeline and healthy balance sheet, Wipro issued cautious guidance for the second quarter. This conservatism reflects Pallia's assessment that while the broader macro environment "remains resilient," ongoing uncertainty continues to dictate corporate purchasing behavior.
