Cognizant Earnings: Financial Services and North America Drive Resilient Performance

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 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.

Why it matters: Strong performances in North America and the financial services sector were the main drivers of Cognizant’s solid results. Financial services recorded another quarter of double-digit growth at 12%. Large deal ramp-up led to a sequential acceleration in North America revenue growth to 6%.

• We like the healthy growth momentum of Cognizant’s financial services business, which stands out from peer results in the low-single-digit range. Financial services firms are ahead of other enterprises on the AI adoption curve, underpinning the strength of Cognizant’s AI portfolio.
• Cognizant now owns the world’s largest pool of Claude-certified architects. Partnerships with other key AI vendors, like OpenAI and Snowflake, are also expanding. We think AI-led service upgrades should drive 30 basis points of annual margin expansion on average in 2027 and 2028.

The bottom line: We maintain our $84 fair value estimate for narrow-moat Cognizant, as the quarterly results reinforced our thesis that Cognizant will continue to grow market share as enterprises expand AI deployment. Shares remain deeply undervalued following the 11% post-earnings rally.

• Currently, time-and-materials-based pricing and fixed-price contracts both account for roughly half of Cognizant’s revenue. Long-term contracts that last more than two years have largely transitioned to the fixed-price model, which should mitigate investor concerns around AI-led pricing deflation.

Coming up: Management trimmed full-year revenue growth outlook by 50 basis points at midpoint to 4.0%-5.5%, citing elevated macro uncertainty. Full-year operating margin guidance of 16.0%-16.2% remains unchanged.