DXC Q2 Deep Dive: Strategic Bookings Growth and AI Investments Amid Revenue Declines

IT services provider DXC Technology (NYSE:DXC) reported Q2 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 2.4% year on year to $3.16 billion. Guidance for next quarter’s revenue was optimistic at $3.17 billion at the midpoint, 2% above analysts’ estimates. Its non-GAAP profit of $0.68 per share was 9.9% above analysts’ consensus estimates.

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StockStory’s Take

DXC’s second quarter results were met with a negative market reaction, despite the company surpassing Wall Street’s revenue and profit expectations. Management cited persistent revenue declines in core segments as well as ongoing pressure in short-cycle custom application projects. CEO Raul Fernandez acknowledged that while organic revenue fell, “bookings increased 14% year-over-year, our third consecutive quarter of double-digit growth,” reflecting progress in new go-to-market initiatives. The quarter’s performance was also shaped by strong deal flow in Europe and Asia Pacific, which partially offset softness in other areas.

Looking ahead, DXC’s updated guidance is driven by expectations of stronger contributions from longer-duration contracts, continued expansion in artificial intelligence (AI) services, and a focus on operational efficiency. Management pointed to a healthy pipeline and the layering in of large deals as key factors for anticipated revenue improvements in the second half of the year. CFO Rob Del Bene emphasized, “We do expect narrowing of the declines in CES as we progress through the year,” while CEO Raul Fernandez underlined the strategic priority of embedding AI into client solutions to drive transformation at scale.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to solid bookings growth, AI-driven service expansion, and improved operational execution, while also highlighting ongoing headwinds in traditional service lines.

• Strong bookings momentum: The company reported its third consecutive quarter of double-digit bookings growth, with a 14% year-over-year increase and a trailing 12-month book-to-bill ratio above 1.0. This was supported by robust deal activity in Europe and Asia Pacific, particularly within public sector and manufacturing clients.

• AI integration across services: Management emphasized that artificial intelligence is being embedded into both client-facing solutions and internal operations. Over 50,000 engineers have been trained on generative AI, and 92% of technical teams are considered AI-ready, with early examples in banking and manufacturing projects demonstrating automation and improved productivity.

• Consulting & Engineering Services (CES) leadership change: The appointment of Ramnath Venkataraman, an industry veteran from Accenture, as President of the CES segment is intended to drive delivery excellence, growth, and more consistent operational results in a key strategic area.

• Segmental performance divergence: While insurance software and services grew organically, the Consulting & Engineering Services and Global Infrastructure Services segments continued to face revenue declines. Management attributed CES softness to clients prioritizing larger, long-term strategic deals over short-term projects, which impacts near-term revenue but builds future backlog.

• Operational improvement focus: Internally, DXC is using AI to automate IT, security, HR, and finance processes, which has led to measurable efficiency gains such as reducing investigation times and accelerating workforce utilization. These improvements are intended to sustain profitability and free cash flow generation despite top-line pressures.

Drivers of Future Performance

DXC’s outlook is anchored by expectations for improved pipeline conversion, operational efficiency measures, and broader client adoption of AI-driven offerings.

• Pipeline conversion and backlog realization: Management expects the layering in of large, multi-year contracts—especially in CES—to translate into revenue improvement in the latter half of the year. CFO Rob Del Bene noted that the strong book-to-bill ratio in CES should “lead to improving CES revenue performance in the second half of this year.”

• AI as a growth catalyst: CEO Raul Fernandez described AI as a “huge opportunity,” with the company aiming to scale proactive, AI-driven solutions that leverage existing industry knowledge. Early adoption among clients in regulated industries is expected to drive incremental demand and support margin stability.

• Operational efficiency and cost management: Management highlighted ongoing efforts to automate internal processes and optimize contract terms in low-margin accounts. These initiatives are expected to sustain non-GAAP profitability targets and support free cash flow, despite continued market uncertainty and the risk of delayed client projects.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) whether large bookings in CES and GIS begin to translate into higher reported revenue, (2) measurable progress in internal operational efficiency from AI-driven automation, and (3) further evidence that proactive AI-centric solutions are gaining traction with new and existing clients. The pace of improvement in segmental revenue trends and sustained free cash flow will also be important indicators of execution.

DXC currently trades at $13.26, down from $13.63 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free).

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