Cognizant Earnings: Expanded AI Partnerships Should Fuel Long-Term Growth

Key Morningstar Metrics for Cognizant Technology Solutions

• Fair Value Estimate
  : $84.00
• Morningstar Rating
  : ★★★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : Medium

What We Thought of Cognizant Technology Solutions’ Earnings

Cognizant Technology Solutions’ CTSH first-quarter revenue grew 4% in constant currency. The operating margin of 16% was stable from previous quarters. First-quarter bookings growth of 21% was healthy and in line with the firm’s Indian IT service counterparts, bringing trailing 12-month bookings to a new high of $29.6 billion.

Why it matters: Cognizant continues to expand its artificial intelligence portfolio through partnerships with key ecosystem stakeholders, including OpenAI and Palantir. Internal AI efforts, led by Project Leap, are crucial for the company’s updated margin expansion goal of 20-40 basis points for 2026.

• Over the past 12 months, Cognizant’s headcount went up by around 20,000. The headcount addition was much higher than Infosys (5,000), Wipro (9,000), and TCS (a reduction of 20,000). Project Leap came at the right time to leverage AI upskilling for efficiency gains.

The bottom line: We maintain our $84 fair value estimate for narrow-moat Cognizant. Shares currently look deeply undervalued. We reiterate that Cognizant’s comprehensive AI portfolio should earn the company a bigger market share as enterprises show stronger interest in AI deployment.

• Financial services group’s quarterly outperformance of 10% in constant-currency revenue growth means Cognizant’s AI-based solutions effectively serve market demand. We expect near-term revenue growth tailwind from new partnerships in financial services with key clients.
• Cognizant’s continuous business model evolution also looks positive to us. With fixed-price and transaction-based contracts gaining traction, the company delivered revenue and operating margin improvement on a per-employee basis.

Coming up: Management expects second-quarter revenue of $5.45 billion-$5.52 billion, or a 3.2%-4.7% constant-currency growth. Besides maintaining full-year revenue guidance at $22.11 billion-$22.64 billion, management raised full-year operating margin guidance by 10 basis points to 16.0%-16.2%.