AI momentum and the iMerit acquisition drive EXL growth
- Q2 2026 data and AI-led revenue grew 30 percent year over year, reaching 61 percent of total revenue.
- Management raised 2026 revenue guidance to between $2.39 billion and $2.415 billion.
- The $170 million upfront purchase of iMerit expands EXL into AI model training.
- EXL introduced token optimization tools that can reduce client AI costs by up to 80 percent.
- Operating margins will drop in the second half of 2026 as the company invests heavily in sales and AI.
AI shift is working and expanding
EXL is in the middle of a major business mix change. Older work was priced by how many people were assigned to a client. Newer work uses data, analytics, and AI to redesign the full workflow. That matters because AI reduces manual labor, and a pure headcount model would turn that efficiency into lower revenue.
Management notes that clients are moving from AI tests into live production. EXL is capturing this by moving more work to fixed-fee, milestone, and outcome-based pricing. This allows EXL to share in the value created by automation. The strategy is working well, as data and AI-led revenue grew 30 percent year over year in Q2 2026 and hit 61 percent of total revenue.
The bull case grew stronger in July 2026 when EXL closed the $170 million acquisition of iMerit. This pushes EXL directly into AI model training, evaluation, and reinforcement learning. Total operations continue to grow, and management raised full year 2026 revenue guidance to a midpoint of $2.40 billion.
The bear case remains tied to margins and legacy decline. Legacy digital operations revenue fell 1.5 percent in Q2 2026. Management says this is by design as work moves into the AI category. Furthermore, the company warned that second half 2026 operating margins will be lower than the first half due to heavy investments in sales and new AI capabilities. Investors need to verify these investments yield profitable growth.
Paid to improve workflows
EXL sells long-term services and technology solutions to large clients. Its main customers operate in insurance, healthcare and life sciences, banking, capital markets, and other global markets. The work includes claims, payment integrity, underwriting support, analytics, data management, customer operations, and finance processes.
The company earns money through several pricing models. These include time-and-material, full-time-equivalent, transaction-based, subscription-based, and outcome-based pricing. A critical change is the shift away from selling labor hours toward selling process results.
That shift helps margins if EXL automates work faster than pricing falls. It hurts if clients demand most of the savings or if EXL must spend heavily on AI tools, data platforms, acquisitions, and trained staff before revenue catches up. The company is currently spending aggressively to build these capabilities.
The model depends on trust and deep client ties. Losing a major client would matter significantly, as top clients drive a large share of the business.
Tools plus domain work
Data and AI-led services
This is the primary growth driver, making up 61 percent of total revenue in Q2 2026. It includes data management, analytics, AI services, and platform-based solutions.
iMerit AI training
Acquired in 2026, iMerit focuses on AI model training, evaluation, and reinforcement learning. This expands EXL into the foundation model building space.
Digital operations
This is the older managed-services base of the company. Revenue in legacy digital operations fell slightly as work migrated into the data and AI-led bucket.
Token optimization
A new capability introduced in Q2 2026. EXL works inside client workflows to reduce AI token consumption by up to 80 percent, improving cost and speed.
EXLdata.ai
An agentic AI-native data suite meant to make enterprise data ready for AI. The open question is how much revenue and margin it will add.
Healthcare payment and data services
Healthcare remains a strong growth area. Payment integrity, care management, revenue cycle, and data services are key use cases for clients.
Four vertical markets
Segment mix reflects Q1 2026 revenue reporting. Insurance is the largest segment.
What could break
Margin squeeze from heavy investment
High impact · High oddsManagement explicitly stated that second half 2026 adjusted operating margins will be lower than the first half. The company is funding aggressive front-end sales and AI capability investments. If these investments do not translate quickly into new revenue, profitability will suffer.
AI work fails to replace legacy work
High impact · Medium oddsManagement says the decline in legacy digital operations revenue is planned. That strategy only works if data and AI-led revenue keeps growing fast enough to offset the decline. If AI migration slows, the old business could shrink without enough new work behind it.
iMerit integration and profitability
Medium impact · Medium oddsEXL paid $170 million upfront to acquire iMerit. The margin profile of this new AI model training business compared to EXL's core analytics segment is an open question. Integrating the new team will require careful execution.
Outcome pricing gives savings away
High impact · Medium oddsOutcome-based pricing can lift margins if EXL keeps part of the productivity gain from AI. It can also pressure revenue if clients force lower prices as AI cuts manual effort. The commercial model transition is risky.
India labor rules pressure margins
Medium impact · High oddsThe New Labour Codes in India created a one-time liability and an ongoing margin hit of about 100 basis points. Guidance includes this pressure, but execution still matters because EXL relies heavily on Indian delivery centers.
In one breath
What does ExlService actually do?
EXL runs and improves business processes for large companies. It uses data, analytics, AI, and industry knowledge to handle work like insurance claims, healthcare payments, underwriting support, and customer operations.
Why is AI important to EXLS stock?
AI reduces the manual labor needed in EXL's client work. The upside is that EXL may keep part of those savings through fixed-fee and outcome-based contracts. The downside is that clients may demand lower prices as work takes fewer hours.
Is EXLS a pure software company?
No. EXL is mainly a services and operations company with growing platform and AI tools. That mix can be attractive, but it does not automatically command the same high margins as a pure software business.
What should investors watch next?
The main watch items are second half 2026 operating margins, the integration of iMerit, and whether data and AI-led revenue can maintain its 30 percent growth rate.
Sources and research notes
This page combines Finn's company research with public filings and other cited materials. The thesis is reviewed when material company information changes; Finn Scores use the latest available scoring data.
- Thesis reviewed
- August 30, 2026
- Score data
- September 27, 2026
- Reviewed by
- Shivam Bharuka
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