In a significant development for the Indian IT landscape, Nomura has reaffirmed its ‘Buy’ rating for Cognizant, setting an ambitious target price of $97 per share. The brokerage firm notes that Cognizant is currently undergoing a strategic overhaul designed to boost growth, harness the power of artificial intelligence (AI), and enhance its market presence. Nomura is optimistic that by 2027, Cognizant will secure a spot among the industry leaders, often referred to as the “winner’s circle.”
Key Reasons Cognizant Stands Out
So, what sets Cognizant apart as one of Nomura’s leading IT recommendations? Here are four compelling factors driving this endorsement:
Improving Revenue Growth Metrics
Nomura’s analysis reveals a significant turnaround in Cognizant’s revenue growth compared to its competitors. The company’s revenue growth gap improved from a staggering minus 800 basis points in 2022 to a positive 50 basis points in 2024. With its sights set on surpassing the peer average in 2025-26, Cognizant is on a path to achieve impressive revenue growth and expand market share. The firm aims for a 10-30 basis points annual margin increase between CY25 and CY27 by focusing on large deals.
Embracing AI for Future Growth
AI is central to Cognizant’s transformation strategy, which includes a three-part approach to foster growth:
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Hyper Productivity: The company has trained around 70% of its workforce in AI, translating to productivity gains equivalent to 12,000 full-time employees. Currently, about 20% of its code generation is AI-assisted.
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Industrializing AI: Cognizant is working on customizing and integrating AI across its platforms, having executed nearly 100 client deployments of its AI solutions.
- Enterprise AI Adoption: The company is focusing on innovating enterprise-level AI solutions, tapping into larger technology budgets of its clients.
Strategic Go-To-Market (GTM) Approach
Nomura has highlighted Cognizant’s strategic refresh in its GTM approach, which has led to an increase in significant deal wins—from 17 in 2023 to 29 in 2024. This revamped strategy emphasizes targeted domain offerings, substantial deals, talent investment, and enhanced solutions, significantly contributing to the company’s growth trajectory.
Commitment to Shareholder Value
Cognizant is not only focused on growth but also on delivering value to its shareholders through a prudent capital allocation strategy. Since 2020, the company has committed approximately $4.8 billion towards acquisitions in areas such as embedded engineering, cloud services, data, and application solutions to strengthen its long-term capabilities. Nomura believes that Cognizant is dedicated to disciplined execution to accelerate revenue growth while improving margins.
Positive Outlook for the Indian IT Sector
The boost in Cognizant’s revenue growth and improving margins is a promising sign for the broader Indian IT industry. Analysts often look to Cognizant’s performance for insights into the overall demand climate ahead of India’s earnings reports. With its strategic initiatives, Cognizant is poised not just for internal success but also to positively influence the entire sector.
In summary, as Cognizant continues to evolve and drive growth through innovation and strategic planning, its trajectory appears bright, making it a pivotal player in the Indian IT arena for years to come.
