Berenberg Sees AI as Catalyst for Growth in IT Consulting Giants Cognizant and Accenture

In a recent sector outlook, Berenberg positions artificial intelligence as a transformative force reshaping the IT services landscape, favoring large-scale providers embedded deeply within client operations. The firm initiated coverage on Cognizant and Accenture with Buy recommendations and assigned a Hold rating to Capgemini, reflecting varying expectations for these companies amid ongoing AI integration. Berenberg anticipates only moderate growth in the IT services industry following a cyclical downturn expected through fiscal year 2024. However, it notes improvement indicators such as upward revisions to guidance from multiple vendors projected in the latter half of 2025, signaling a move toward demand stabilization. Importantly, the broker forecasts that the sector's upside potential is more likely to come from vendors gaining market share rather than a broad return to double-digit growth rates. The report emphasizes AI's capacity to unlock a meaningful medium-term opportunity. Vendors capable of enhancing productivity, securing AI-enhanced outsourcing projects, and maintaining margin resilience stand to benefit most. Berenberg identifies that scaled participants deeply entrenched in clients' ecosystems are positioned to capture discretionary spending effectively as economic conditions improve. A notable shift highlighted involves the disruption of the traditionally labor-intensive service delivery approach. Employee productivity is emerging as a crucial competitive edge in this evolving environment. Among the peers, Cognizant demonstrates leading efficiency, achieving an approximate 8% increase in year-over-year revenue per full-time employee on a trailing 12-month basis. Accenture also records clear advancements in productivity metrics, while Capgemini trails with relatively flat revenue per employee. Margin trends remain inconsistent as the sector contends with pricing pressures and evolving pricing frameworks which result in AI-driven efficiency savings being increasingly passed onto clients. Berenberg suggests that selective margin expansion is expected until firms achieve better monetization of AI benefits, favoring Cognizant and Accenture over Capgemini in this context. Regarding valuation, the sector now trades near long-term averages, reflecting normalized growth rates accompanied by investor caution. Within this landscape, Cognizant emerges as Berenberg's preferred stock choice. The broker foresees acceleration in Cognizant's revenue growth between fiscal years 2025 and 2027, supported by strategic management shifts, restructuring efforts, and targeted AI investments, along with steady margin improvement. Accenture is viewed as well placed to sustain gains in market share owing to its considerable scale and early commitment to AI technologies. Conversely, Capgemini's nearer-term prospects face headwinds from diminished discretionary demand—particularly in segments such as France and automotive—and slower-than-expected progress on margin enhancement. In sum, Berenberg highlights the IT services sector’s gradual recovery and transformation driven by AI adoption, with significant implications for industry fundamentals including productivity and profitability. Investors are advised to monitor evolving market dynamics closely, especially the capability of firms to monetize AI-related efficiencies and maintain competitive positioning in a changing demand environment.