Accenture's forecast eases AI disruption fears, lifts battered IT services stocks

On October 1, Accenture's shares experienced a remarkable 22% surge, marking their highest single-day performance ever. This surge came after the tech giant released a more optimistic forecast for annual revenue growth, dispelling concerns surrounding AI-induced disruptions that had plagued the IT consulting industry. The improved outlook showcased how global consulting firms were capitalizing on the growing demand from businesses seeking external technology partners to automate complex tasks and facilitate AI adoption, consequently boosting the battered shares of rival companies.

Cognizant shares jumped approximately 8%, IBM shares increased by 3%, while US-listed shares of Indian counterparts Wipro and Infosys also rose between 6% and 7%. Steve Sosnick, a chief market analyst at Interactive Brokers, noted that numerous institutions had been underinvested in software, prompting investors to reassess their perceptions of the company.

Steve Sosnick explained, "A lot of institutions feel they're underinvested in software. That was clearly the case with Accenture, and investors are quickly reevaluating their views on the company." While software stocks had largely recovered from a sharp sell-off earlier in the year, driven by fears that AI could displace the products and services offered by these companies, IT services firms had been lagging.

Accenture's shares had dropped about a third this year before Thursday's rally. However, during the quarter, Accenture announced a lower pricing strategy in many areas, reflecting the challenges faced by the industry as clients sought to maximize savings from AI. The company projected annual revenue growth to range between 3% and 6% for fiscal 2027, surpassing the analysts' average estimate of 3.9% growth.

CEO Julie Sweet revealed on a post-earnings call that Accenture planned to invest an additional $5 billion in acquisitions in fiscal 2027, driven by promising growth opportunities. In June, Accenture closed three significant cybersecurity deals totaling $4.18 billion, including a majority investment in Dragos. These acquisitions contributed to a 4% increase in fourth-quarter bookings, which reached $22.17 billion.

Consulting revenue grew by 7% to $9.28 billion, lifting total sales to $18.68 billion, surpassing the previous estimate of $18.03 billion. In September, Accenture teamed up with Anthropic, an IPO-bound company, to independently assess its frontier AI models. The companies agreed to a joint commitment of at least $1 billion each over five years to bolster AI safety and testing capabilities.