We came across a bullish thesis on Cognizant Technology Solutions Corporation (CTSH) on Johnson Equity Analysis’s Substack by Kyler Johnson. In this article we will summarize the bulls’ thesis on CTSH. CTSH Technologies, Inc. share was trading at $77.87 as of Sept 16th.
Cognizant presents a compelling investment opportunity as it is poised to benefit from the growing wave of digitalization and AI adoption. Over the past three decades, digitalization has been a consistent driver of growth across industries, with both public and private organizations increasingly relying on IT strategies to optimize operations. This has created steady demand for consulting services, making IT consultancies a low-volatility investment with stable returns. The simplicity of the business model and transparency in financial reporting provide investors with clear insight into the intrinsic value of these companies, ensuring that they avoid overpaying for shares.
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The emergence of new technologies continues to drive successive growth cycles. Over the last decade, cloud computing played a dominant role, and looking ahead, artificial intelligence (AI) is set to be the primary driver of growth. Organizations across industries will need expert advice on navigating the evolving technological landscape, particularly in implementing AI services effectively. Whether it’s managing data, cloud computing integration, or addressing cybersecurity concerns, companies will seek out IT consultancies for guidance in adopting AI solutions. In addition, the actual deployment of AI technologies will require specialized expertise, further enhancing the value of consultancies.
In Cognizant’s most recent earnings report, the company highlighted an increasing interest in AI among its clients. Several significant AI-centred contracts have been signed, marking the early stages of what could be a long-term revenue driver. Although Cognizant’s topline has remained flat over the past 18 months, the stagnation is expected to be temporary. Sales are projected to grow by 5% in 2025, with growth remaining in the upper single digits through 2027, before gradually slowing. EBIT margins are likely to stay around 15%, providing consistent profitability.
By adjusting the discount factor, the new fair value estimate for Cognizant has risen to $90, up from $85 earlier this year. With AI spending cycles expected to accelerate in the coming years, Cognizant has the potential to outperform these projections, making its shares undervalued at current levels. For investors, the combination of stable operations, growing AI demand, and attractive valuation presents a strong case for investing in Cognizant.
Cognizant Technology Solutions Corporation is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 39 hedge fund portfolios held CTSH at the end of the second quarter which was 35 in the previous quarter. While we acknowledge the risk and potential of CTSH as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CTSH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
