HCL Shares Rise After Earnings Upgrades Despite Software Drag

HCL Technologies stock climbed 7% on Tuesday as select broking firms upgraded their earnings estimates following the release of September quarter results. Sequential constant currency revenue grew 2.3%, which fell below the consensus estimate of 2.7%. Larger peer Tata Consultancy Services clocked sequential constant currency revenue growth of 0.5% during the same quarter.

Business Segments and Guidance

The main drag for HCL came from its software business, which dropped 5.8% in constant currency sequentially due to fewer multi-year license renewals compared to last year. Meanwhile, the services business grew 3% and included inorganic contributions from HPE Telco Solutions and Jaspersoft. Following these results, the company revised its services revenue growth guidance to 3-4% from the earlier 1.5-4.5%. Overall company guidance shifted to 2.5-4% from 1-4%, which includes an estimated 87 basis points contribution from inorganic growth.

Deals and Margins

New deal total contract value improved to $3.26 billion from $2.41 billion in the previous quarter, marking the second-highest deal wins seen in the second quarter. Advanced AI revenue reached $219 million, now forming about 6% of total revenue. Earnings before interest and tax margin expanded by 130 basis points to 18.2%, helped by Project Ascent, operating leverage, and advanced AI offerings. However, upcoming wage hikes could create a negative impact of 80 basis points in the third quarter and 60 basis points in the fourth quarter.

Context

IT service companies often experience fluctuating quarterly revenue due to shifting deal renewal cycles and varying demand in telecom and manufacturing sectors. Broader macroeconomic uncertainty and emerging technologies like artificial intelligence continue to shape how large technology firms manage their margins and long-term growth strategies.