Wipro's Margin Resilience and AI Push: Can Digital Transformation Sustain Growth?

Wipro Limited's Q4FY25 earnings highlighted a challenging revenue environment but underscored operational discipline and strategic progress in its digital transformation. While IT services revenue dipped 0.8% sequentially to $2.6 billion, the company's operating margin expanded to 17.5%, a 110 basis-point improvement year-on-year, signaling margin resilience amid macroeconomic headwinds. This article evaluates whether Wipro's focus on AI-driven solutions, large deal execution, and cost optimization positions it to outperform peers in FY26.

Margin Strength Amid Revenue Softness

The company's ability to maintain margins despite declining revenue is a key positive. Full-year FY25 operating margins rose to 17.1%, up 0.9% from FY24, driven by cost optimization and improved pricing discipline. This contrasts with sector peers like Tata Consultancy Services (TCS) and Infosys, which have faced margin pressures due to currency headwinds and inflation.

The margin expansion suggests Wipro is succeeding in its strategy to prioritize profitability over top-line growth. CFO Aparna Iyer emphasized maintaining margins in a "narrow band" in FY26, even as revenue guidance for Q1FY26 points to a 3.5%-1.5% sequential decline. This cautious outlook reflects macro risks, particularly in Europe and consumer sectors, but the company's focus on high-margin AI and cloud projects could provide a buffer.

AI as a Growth Catalyst

Wipro's AI initiatives are central to its differentiation. The company highlighted AI's role in client conversations, with wins such as a 5-year, $650M IT transformation deal for a global tech leader and an AI-driven IT infrastructure partnership with a leading food distributor. These deals underscore AI's ability to boost productivity and client satisfaction, with Net Promoter Scores (NPS) improving due to "execution rigor."

Management noted AI is now embedded in 80% of new deals, with Capco's BFSI modernization projects—a key growth area—relying heavily on AI for compliance and digital platforms. While the transcript lacked specifics on Cloud/NZIA (Net Zero Initiatives), AI's integration into cloud modernization efforts (e.g., private cloud for a parcel delivery company) aligns with broader digital trends. The absence of NZIA details is a minor gap, but AI's focus remains a stronger growth lever.

Deal Momentum and Regional Risks

Large deal execution is another bright spot. Q4FY25 saw $1.8 billion in large deals (up 48% YoY), bringing full-year large deal value to $5.4 billion, a 17.5% increase. Wins like the Phenix Steel deal in Europe and a $650M banking partnership in India signal demand for Wipro's industry-specific solutions. However, Europe remains a drag, with revenue down 6.9% YoY due to delayed projects. Management expects stabilization there in H2FY26 but faces risks in sectors like automotive and consumer tech.

Investment Case: Buy with a Long-Term Lens

Wipro's stock (WIPRO.NS) has underperformed peers in recent quarters, down 12.5% over six months as revenue headwinds dominated headlines. But the margin resilience and strategic execution suggest a turnaround is possible. Key arguments for a buy recommendation include:

1. Margin Resilience: The 17.5% operating margin in Q4 sets a high bar. If Wipro can sustain this amid FY26's cautious guidance, it could surprise on the upside.
2. AI-Driven Pipeline: The $5.4B large deal backlog, with AI at its core, positions Wipro to capture premium pricing in transformation projects. The Phoenix Group deal alone could generate multiyear revenue.
3. Sector Shifts: BFSI and healthcare, which account for ~30% of revenue, are less exposed to macro volatility and show steady demand for modernization.

Risks remain, notably delayed ramp-ups in Europe and a 15% voluntary attrition rate that could strain talent pipelines. However, Wipro's focus on leadership development and realignment of global teams (announced in Q4) should mitigate these.

Conclusion: Hold for FY26, Buy on Dips

Wipro is not out of the woods yet—near-term revenue growth will likely lag peers. But its margin discipline, AI-first strategy, and strong large deal pipeline suggest FY26 could be a transition year. Investors should consider adding to positions if the stock dips below ₹500, with a 12-month target of ₹650 based on margin expansion and deal execution. While macro risks linger, Wipro's strategic bets on AI and high-value clients make it a compelling long-term play in the IT services sector.