Large Deal Wins and AI Will Drive Momentum Despite Visa Headwinds

Key Takeaways

• 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

A professional services company, provides consulting and technology, and outsourcing services in North America, Europe, and internationally.

• 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 Future Earnings and Revenue Growth

Assumptions

• 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

• 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

• 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.