Artificial intelligence-driven disruption is increasing pressure on the IT services industry, prompting Berenberg to turn more cautious on the sector as concerns grow over AI-led pricing deflation, uncertain value capture and a lack of near-term catalysts for a valuation recovery.
The brokerage said IT services stocks have significantly underperformed broader equity markets this year despite relatively stable earnings expectations, as investors worry that advances by AI providers such as OpenAI and Anthropic could erode demand for traditional consulting and outsourcing services.
Berenberg downgraded Cognizant Technology Solutions to Hold from Buy and cut its price target to $59 from $81, arguing that structural AI risks have intensified since January and that the company still trails sector leaders in the differentiated capabilities needed to offset AI-driven deflation.
The brokerage maintained a Buy rating on Accenture but lowered its price target to $220 from $273, citing sector-wide multiple compression rather than any change to earnings forecasts. It reiterated a Hold rating and €112 price target on Capgemini.
Berenberg said AI is creating deflationary pressure across legacy IT services by reducing billable hours and enabling clients to demand lower prices for AI-assisted work. However, it also sees new growth opportunities in areas such as enterprise modernisation, AI infrastructure, agentic AI deployment and AI-powered business transformation.
The firm believes Accenture is best positioned to benefit from these emerging AI value pools because of its higher-value service mix, strategic partnerships and investments in AI-focused platforms. It called Accenture its top sector pick and said the company's historical valuation premium to peers should eventually return.
Berenberg also noted that AI model developers are increasingly moving into enterprise deployment services, citing OpenAI's acquisition of consulting firm Tomoro and Anthropic's deployment-focused initiatives. While these moves raise concerns about a shrinking addressable market for traditional IT services firms, the brokerage said AI providers currently lack the scale and industry expertise needed to replace large outsourcing vendors in complex, multi-year transformation projects.
Despite weak sentiment, the brokerage said demand remains relatively resilient, with financial services continuing to outperform other end markets and large AI-related bookings growing across major vendors. Still, it expects average revenue growth for leading IT services firms to remain in the low single digits as client spending is increasingly redirected toward AI-led transformation and cost-optimization initiatives.
source https://www.investing.com/news/stock-market-news/berenberg-downgrades-cognizant-as-ai-risks-cloud-it-services-outlook-4747929
