Company Reports

Nearly 30 years after relocating its headquarters to the US, Cognizant remains true to its Indian origins by adopting a business model that leverages cheap offshore labor to arbitrage wage gaps across different regions. Such practices are commonly seen among Indian IT service providers, helping them effectively fulfill customers’ IT needs at lower costs. Thanks to India’s deep pool of tech talents, Cognizant was able to grow into one of the world’s leading IT service providers, with offerings in software development, system integration, and business process outsourcing.

Cognizant's 4% second-quarter constant-currency revenue growth topped that of Indian IT consultants on an organic basis. Operating margin of 16% was stable, and trailing 12-month bookings posted a resilient 5% expansion amid a volatile enterprise IT spending environment.

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

Cognizant finished 2025 strong, with fourth-quarter revenue up 5% and full-year revenue up 7%. Full-year operating margin expanded 140 basis points to 16%, which is the highest since 2018. These positive results were mainly driven by increased fixed-price contracts and effective headcount scaling.

Nearly 30 years after relocating its headquarters to the US, Cognizant remains true to its Indian origins by adopting a business model that leverages cheap offshore labor to arbitrage wage gaps across different regions. Such practices are commonly seen among Indian IT service providers, helping them effectively fulfill customers’ IT needs at lower costs. Thanks to India’s deep pool of tech talents, Cognizant was able to grow into one of the world’s leading IT service providers, with offerings in software development, system integration, and business process outsourcing.

Cognizant's solid 7% third-quarter revenue growth is a result of broad-based strength across all four operating segments. Adjusted operating margin expanded 40 basis points sequentially to a three-year high of 16%, mainly driven by AI-based efficiency gains and disciplined expense management.

We take a fresh look at Cognizant Technology Solutions, a multinational IT services company that leverages offshore labor in India to deliver a variety of offerings, including consulting, system integration, and business process outsourcing.

Nearly 30 years after relocating its headquarters to the US, Cognizant remains true to its Indian origins by adopting a business model that leverages cheap offshore labor to arbitrage wage gaps across different regions. Such practices are commonly seen among Indian IT service providers, helping them effectively fulfill customers’ IT needs at lower costs. Thanks to India’s deep pool of tech talents, Cognizant was able to grow into one of the world’s leading IT service providers, with offerings in software development, system integration, and business process outsourcing.

Bloomberg reported on Sept. 19 that President Donald Trump is expected to announce a new $100,000 fee on H-1B visa applications. Shares are down up to 5% for IT services providers with high offshore leverage, including Cognizant, Infosys, and Wipro.

Cognizant's strong growth momentum was evident in its second-quarter results, with revenue up 7% in constant currency to $5.2 billion. Adjusted operating margin expanded 100 basis points year over year, highlighting continued margin gains from Cognizant's cost-oriented NextGen program.

Cognizant is one of the leading IT services providers in the world, with products focusing on software development, including application development and maintenance, systems integration, and process automation. Revenue primarily comes from North America while the workforce is largely based in India. While Cognizant may not have the same scale in traditional consulting that peers like Accenture possess, the company provides a relatively robust suite of offerings across the IT services value chain. Cognizant was one of the first major IT services players to model its business on outsourcing labor costs to the Indian market, and while that labor arbitrage gap has closed a bit compared with the early days, we still view the business as moaty, benefiting from significant switching costs and intangible assets based in its technical expertise.

Narrow-moat Cognizant delivered strong first-quarter results, exceeding both our estimates and consensus expectations on revenue and profitability. This better-than-expected performance was driven by resilient demand for digital transformation and cost-reduction initiatives across key verticals, which helped offset late-quarter headwinds from discretionary spending constraints. Management provided solid second-quarter guidance, forecasting revenue growth of 5.9% to 7.4% year on year. More notably, full-year guidance was raised: revenue is now expected to grow 3.9% to 6.4% year on year, up from the prior range of 2.6% to 5.1%. Adjusted earnings per share is projected to be between $4.98 and $5.14 (previously $4.90 to $5.06). Adjusted operating margin guidance is unchanged at 15.5%-15.7%.

Narrow-moat Cognizant reported mixed fourth-quarter earnings that beat our top-line expectations but missed our bottom-line forecasts. Strong momentum in large deals and artificial intelligence-related bookings drove robust top-line growth, but increased compensation expenses pressured margins. Management’s fiscal 2025 first-quarter guidance suggests revenue growth of 5.6% to 7.1%, with an adjusted operating margin between 15.5% and 15.7%.

Cognizant is one of the leading IT services providers in the world, with products focusing on software development, including application development and maintenance, systems integration, and process automation. Revenue primarily comes from North America while the workforce is largely based in India. While Cognizant may not have the same scale in traditional consulting that peers like Accenture possess, the company provides a relatively robust suite of offerings across the IT services value chain. Cognizant was one of the first major IT services players to model its business on outsourcing labor costs to the Indian market, and while that labor arbitrage gap has closed a bit compared with the early days, we still view the business as moaty, benefiting from significant switching costs and intangible assets based in its technical expertise.

Cognizant posted a solid third quarter, with results coming in slightly above our expectations as the industry is seeing a steady improvement in customer spending, especially in financial services, which is gaining greater wallet share growth as customers reorient themselves with more discretionary projects. This is encouraging as financial services tends to be the greatest revenue contributor for IT services firms, including for Cognizant. Furthermore, we continue to consider Cognizant’s financial services banking platform as best-of-breed, making its recovery a very welcome one—even if gradual. We are reiterating our $94 fair value estimate for the firm as we see it well set to win its fair share in AI workloads throughout its segments. Shares are up 4% in after-hours trading but still leave significant upside, in our view.

Narrow-moat Cognizant reported second-quarter results surpassing our expectations all around. We are reiterating our $94 fair value estimate for the firm as our belief that Cognizant will benefit considerably from demand in digital transformation projects and artificial intelligence enablement remains strong. We continue to believe that the market is discounting the company for its past when it was slow to move on to cloud solutions. But, at present, Cognizant appears up to speed on all things latest and greatest in enterprise technology, making this a top pick in technology, in our view.

We are maintaining our $94 fair value estimate for narrow-moat Cognizant after the firm kicked off fiscal 2024 with a set of strong financial results marked by impressive profitability despite the tough macro conditions. Over the last few quarters, Cognizant and its IT services peers have seen a marked slowdown in discretionary customer spending amid a generally tight macro environment. Investors have homed in on this near-term weakness, dealing overly punitive damage to Cognizant's valuation. With an eye on the long term, we continue to view Cognizant as a moaty IT service vendor with a strong growth and margin profile. Despite shares trading up afterhours, we continue to view Cognizant as materially undervalued and trading in the 5-star territory.

We are maintaining our $94 fair value estimate for Cognizant after the firm reported strong financial results to close out fiscal 2023. The upward impact of these results on our fair value estimate was offset by the weaker-than-expected guidance for fiscal 2024. All considered, we continue to view Cognizant as materially undervalued and think that the market is allowing near-term discretionary weakness to factor into longer-term discretionary spending expectations. We expect discretionary spending to rebound as macroeconomic weakness dissipates, which we believe will enable Cognizant to rejuvenate its top-line growth.

Cognizant is one of the leading IT services providers in the world and was known as a growth darling for its revenue growth of 20%-40% during 2010-15. While we don't see Cognizant returning to that level of growth in the future, reacceleration in growth is not farfetched. We think Cognizant can deliver this via thoughtful investment in enhancing technical capabilities, more robust strategy consulting operations, and a more diversified client base. With such a focus, we think Cognizant has the potential to strengthen its already moaty business, which benefits from significant switching costs and intangible assets based in its technical expertise.

Cognizant’s results were right in line with our top- and bottom-line expectations in the third quarter. Our expectations, however, were baking in significant discretionary weakness from cut customer budgets—and such softness was realized though large deal activity softened the blow. We think the market is allowing near-term discretionary weakness to factor into longer-term discretionary spending expectations, which we think is too conservative in the wake of hefty demand for digital transformation projects which we see as rebounding after this time of macroeconomic weakness. While the firm narrowed the range for full-year revenue and EPS within their past ranges, we think this is a reasonable adjustment as the firm has one more quarter under its belt. All considered, we are maintaining our fair value estimate for narrow-moat Cognizant at $94 per share. Shares have remained flat upon results, leaving Cognizant significantly undervalued, in our view. Altogether, we continue to view the stock as a top pick under our technology coverage as we are encouraged by their reversal of course compared with historical bumps in the road. We think this inflection is reflected in its net promoter score at all-time levels.