CTSH: AI Deals And Buybacks Will Support Measured Upside Amid Policy Risks

Analysts nudged their fair value estimate for Cognizant Technology Solutions slightly higher to about $85 from roughly $84.70, citing improving bookings trends, a healthier large deal pipeline, and expectations for a new phase of AI driven growth and profitability that supports modestly faster revenue and stable margin assumptions.

Analyst Commentary

Street research on Cognizant continues to reflect a constructive but measured stance, with most commentary highlighting improving execution, a healthier demand backdrop, and a clearer AI narrative, while still flagging pockets of volatility in bookings and macro sensitivity.

Bullish Takeaways

Bullish analysts see Cognizant entering a new phase of growth and profitability, citing stronger leading indicators such as bookings momentum, an expanding large deal pipeline, and sustained organic constant currency growth supporting a higher fair value range.
Several firms highlight sequential acceleration in key verticals, particularly financial services and health sciences, which they believe can underpin mid single digit to high single digit revenue growth and help support the revised fair value estimate.
Coverage initiations with positive stances emphasize Cognizant's mature offshoring model and its accelerated artificial intelligence focused strategy as structural advantages that can drive operating leverage and support stable to improving margins.
Some bullish analysts argue that near term estimates may still be conservative, pointing to upside risk if large deal signings normalize and AI related projects convert more quickly to revenue.

Bearish Takeaways

Bearish analysts, or those taking a more cautious view, highlight that trailing 12 month bookings growth in the mid single digits and quarterly bookings declines underscore ongoing lumpiness in large deals, which could cap near term upside to revenue growth.
The reduction in at least one price target reflects concerns that, despite recent beats and guidance raises, valuation already discounts a good portion of the turnaround and AI opportunity, limiting multiple expansion without clearer evidence of durable double digit growth.
Some neutral stances point to the broader IT services sector facing structural challenges tied to AI disruption, with uncertainty over pace and mix of AI driven work creating execution risk for Cognizant's transformation plans.
There is also caution that while sentiment has improved, the stock may remain sensitive to any slowdown in enterprise spending or a reversal in early green shoots across key verticals, which could pressure both growth expectations and the fair value framework.

What's in the News

Cognizant issued 2025 guidance calling for 6.6% to 6.9% reported revenue growth, or 6.0% to 6.3% in constant currency, signaling confidence in a sustained demand upturn and ongoing execution progress.
The company completed a major tranche of its long running buyback program, repurchasing about 6.4 million shares in the latest period and nearly 30% of shares overall since 2017, underscoring a continued commitment to shareholder returns.
Cognizant expanded its AI and cybersecurity focused client work through new and deepened partnerships with firms including BayWa, Merchants Fleet, SmartestEnergy, AP Pension, Venbrook, and the North Carolina Turnpike Authority, highlighting momentum in digital transformation and automation driven services.
The firm is scaling its generative AI capabilities via a broad collaboration with Anthropic and the launch of its Enterprise Vibe Coding Blueprint, aiming to move clients from AI experimentation to production deployment across software engineering and enterprise workflows.
A proposed US policy that would require a $100,000 payment for H-1B visa applications could raise labor cost and access risks for offshore focused IT providers such as Cognizant, Wipro, and Infosys if implemented as reported (Bloomberg).

Valuation Changes

Fair Value Estimate has risen slightly to about $85.22 from approximately $84.70, reflecting a modest upward adjustment in intrinsic value assumptions.
Discount Rate has edged down marginally to roughly 9.01% from about 9.01%, indicating a slightly lower perceived risk profile in the valuation model.
Revenue Growth Assumption is essentially unchanged at around 4.71%, suggesting stable expectations for medium term top line expansion.
Net Profit Margin Assumption remains effectively flat at about 12.91%, implying no material change to long run profitability expectations.
Future P/E Multiple has increased slightly to roughly 16.0x from about 15.9x, signaling a modestly higher valuation multiple applied to forward earnings.

Proprietary AI development and integration of automation are expanding revenue opportunities and supporting sustained improvements in profitability and market share.
Strategic focus on large-scale digital transformation projects and outcome-based services is strengthening recurring revenue and long-term growth prospects.
Increasing adoption of AI, rising competition, regulatory shifts, and evolving client preferences threaten Cognizant's traditional service model, margins, and long-term revenue growth.

Catalysts

About Cognizant Technology Solutions

A professional services company, provides consulting and technology, and outsourcing services in North America, Europe, and internationally.What are the underlying business or industry changes driving this perspective?

Cognizant's aggressive buildout of proprietary AI and agentic capabilities-demonstrated through early client engagement momentum, a growing patent portfolio, and platform launches-signals growing differentiation in enterprise AI consulting, which is expected to expand both revenues (through capturing new spend cycles) and net margins (via premium IP pricing).
Client transition from experimentation to large-scale implementation of GenAI and automation projects is fueling a new wave of large, multi-year deal wins, especially in Financial Services and Health Sciences, indicating stronger long-term recurring revenue visibility and potential for sustained double-digit EPS growth.
The accelerating shift toward digital transformation-particularly cloud migration, agentic automation, and AI-driven process redesign-is expanding Cognizant's total addressable market as enterprises seek partners for end-to-end modernization, supporting both top-line revenue growth and gross margin expansion.
Internal investments in AI-enabled developer productivity (AI-generated code now at 30% and targeted to grow) and operational automation are reducing delivery costs and attrition, underpinning ongoing operating margin expansion and improved net income scalability.
Early and substantive moves to integrate digital/BPM services with outcome-based, next-gen AI offerings are capturing new outsourcing opportunities, allowing Cognizant to take market share and potentially sustain above-industry growth rates, with positive implications for both revenue growth and margin resilience.

Cognizant Technology Solutions Earnings and Revenue Growth

Cognizant Technology Solutions Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Cognizant Technology Solutions's revenue will grow by 4.7% annually over the next 3 years.
Analysts assume that profit margins will increase from 11.9% today to 12.5% in 3 years time.
Analysts expect earnings to reach $2.9 billion (and earnings per share of $6.08) by about September 2028, up from $2.4 billion today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.8x on those 2028 earnings, up from 14.2x today. This future PE is lower than the current PE for the US IT industry at 29.0x.
Analysts expect the number of shares outstanding to decline by 1.5% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.9%, as per the Simply Wall St company report.

Cognizant Technology Solutions Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Accelerating client adoption of generative and agentic AI may eventually automate tasks traditionally delivered by Cognizant's large services workforce, reducing long-term demand for labor-intensive offerings and putting pressure on revenue growth and pricing power.
Heightened competitive intensity from technology vendors (such as hyperscalers or AI model providers like OpenAI entering consulting) and other IT service firms could erode Cognizant's market share and create downward pressure on project pricing and net margins.
Potential wage inflation and persistent employee attrition, especially in key delivery hubs like India, could narrow operating and net margins even as headcount grows, especially if AI-driven productivity gains plateau or fail to offset rising costs.
The rapidly changing regulatory landscape, including increased data localization requirements and industry-specific compliance rules, could escalate delivery costs for Cognizant's global operations, negatively impacting net margins and increasing execution risk on large, cross-border projects.
A shift in client preferences toward platform-based, as-a-service models and direct partnerships with product/software companies may cannibalize Cognizant's traditional outsourcing business, creating earnings headwinds if the company is unable to scale its proprietary digital/IP-based offerings quickly enough.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $86.95 for Cognizant Technology Solutions based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $103.0, and the most bearish reporting a price target of just $75.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $23.5 billion, earnings will come to $2.9 billion, and it would be trading on a PE ratio of 17.8x, assuming you use a discount rate of 8.9%.
Given the current share price of $70.78, the analyst price target of $86.95 is 18.6% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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