DOX Q2 Deep Dive: Cloud and AI Progress Amid Revenue Headwinds

Telecom software provider Amdocs (NASDAQ:DOX) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, but sales fell by 8.4% year on year to $1.14 billion. The company expects next quarter’s revenue to be around $1.15 billion, close to analysts’ estimates. Its non-GAAP profit of $1.72 per share was 0.6% above analysts’ consensus estimates.

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StockStory’s Take

Amdocs saw a positive market response to its Q2 results, as the company delivered revenue and non-GAAP earnings per share slightly above Wall Street expectations despite an 8.4% drop in year-on-year sales. Management attributed the quarter’s performance to ongoing growth in cloud-related projects, highlighted by new modernization deals in Europe and North America, and strong execution in managed services. CEO Joshua Sheffer credited efficiency improvements and increased adoption of the company’s digital platforms for supporting profitability during a period of industry transition, stating, “Profitability improved by 10 basis points sequentially driven by internal efficiency improvements.”

Looking ahead, Amdocs’ guidance is supported by expectations for continued double-digit growth in cloud solutions and the emerging impact of generative AI deployments. Management believes that expanding commercial partnerships, particularly in generative AI and SaaS offerings, will drive incremental revenue and margin improvement. CFO Tamar Rapaport-Dagim noted, however, that the pace of AI-related revenue contribution remains uncertain, explaining, “We are starting to see conversion of proof-of-concept into commercial deals now... the pace is hard to predict.” The company is also closely monitoring macroeconomic and geopolitical factors that could influence customer spending and project timing.

Key Insights from Management’s Remarks

Management pointed to sales momentum in cloud, the ramp-up of generative AI projects, and improved operational efficiency as key contributors to the quarter’s outcome.

• Cloud project momentum: Amdocs secured new cloud modernization deals in Europe and Latin America, expanding existing relationships with Elisa in Finland and Claro Brazil, while deepening its partnership with a major Eastern European operator. These moves reflect increased demand for end-to-end cloud migration and digital transformation among telecom customers.
• Generative AI wins: The company converted four generative AI proof-of-concept projects into commercial agreements this quarter, including expanded use cases with e& UAE and deployments for Consumer Cellular. Management emphasized that these early AI wins serve as a foundation for broader adoption and incremental revenue over time.
• Managed services strength: Managed services revenue reached a record level, underpinned by multi-year renewals and expansions with key clients such as AT&T and Telstra. These long-term contracts support business resiliency and high customer retention rates.
• SaaS product adoption: Amdocs highlighted growing traction for its SaaS offerings, especially the ConnectX platform, which enables telecom operators to launch targeted digital brands. The company also reported expanding eSIM adoption, now serving over 40 customers globally.
• Operational efficiency and margin gains: Ongoing efficiency initiatives, including automation and the internal use of AI technology, contributed to operating margin expansion. The phaseout of lower-margin noncore activities further supported profitability and freed up resources for strategic investments.

Drivers of Future Performance

Amdocs’ outlook centers on sustained cloud growth, the scaling of generative AI solutions, and prudent cost management amid industry uncertainty.

• Cloud as core growth engine: Management expects double-digit revenue growth in cloud solutions to continue, driven by ongoing customer migrations and the expansion of SaaS platforms. The company believes most customers are still in the early stages of transitioning to cloud, providing a multi-year runway for growth.
• AI commercialization and adoption: The pace of generative AI monetization is expected to accelerate as more proof-of-concept projects convert to commercial deals, though management cautions that the speed of adoption and its impact on revenue remain difficult to predict. Investment in data infrastructure and AI-enabled platforms is seen as an important prerequisite for future growth.
• Macro and customer spending risks: Amdocs continues to monitor macroeconomic, geopolitical, and industry-specific challenges that could impact customer budgets, project timelines, or deal conversions. Management signaled that while no erosion in demand has been observed, uncertainty persists and could affect future results.

Catalysts in Upcoming Quarters

Looking forward, our analysts will track (1) the rate at which cloud migration and generative AI projects transition from pilot to commercial scale, (2) the momentum of new SaaS product launches and their adoption among telecom operators, and (3) the stability of managed services renewals and expansions. Any acceleration in AI-driven deal flow or resolution of macroeconomic uncertainties could meaningfully shape Amdocs’ growth trajectory.

Amdocs currently trades at $89.55, up from $84.60 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).

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