Cognizant sees growth driven by GenAI, healthcare and financial sectors in Q2

Cognizant Technologies, a US-based IT and professional services firm, announced on Thursday that its performance in the April-June quarter surpassed analysts' expectations, driven by its generative artificial intelligence (GenAI) strategy, a strong healthcare sector presence, and a rebound in financial services.

Operating on a January-December calendar, Cognizant reported a net profit of $566 million, reflecting a 22.2% increase from the previous year. Revenue for the quarter was $4.85 billion, slightly down 0.7% year-on-year (YoY) but exceeding the industry estimate of $4.8 billion. Sequential revenue growth was 1.9%. 

The company also revised its full-year revenue growth guidance for FY24 from $19.3 billion to $19.5 billion, indicating a growth range of -0.5% to 1%.

Last year, Cognizant announced a $1 billion investment over three years to boost its GenAI capabilities, which has proved successful as evidenced by its Q2 results. The firm has onboarded over 200 clients to its Cognizant AI platforms, with these clients transitioning Proof of Concept (PoC) projects to production-grade products. Although revenue from this technology was not disclosed, management expressed confidence in the positive momentum.

CEO S. Ravi Kumar stated that GenAI is rapidly becoming integrated into all company operations, with the newly established advanced AI lab already producing 53 patents, with more pending approval. Cognizant has also partnered with Microsoft to integrate GenAI into healthcare administration.

Last week, Cognizant launched Cognizant Moment, calling it ‘an evolution of its digital experience practice area’, aimed at helping clients leverage AI to improve customer experiences and growth strategies. 

In comparison, Tata Consultancy Services (TCS) announced $1.5 billion in AI and GenAI projects in its Q1 ending April-June, followed by Accenture's $2 billion in cumulative GenAI revenue. Other Indian IT services firms like Infosys and Tech Mahindra are also optimistic about GenAI.

Despite many tech firms initiating GenAI projects, Gartner predicts that 30% of these projects may be abandoned after the PoC stage by the end of 2025.

By vertical, Cognizant's banking and finance segment saw a 5% sequential growth, though it was down 1.1% YoY. The Health Sciences segment increased by 3% sequentially and 1.5% year-on-year, while the Products and Resources segment declined by 4.3% YoY.

The management expressed optimism about the recovery in financial services and North America. “Our business in America and banking has performed well for two consecutive quarters, and we are now applying that success template internationally,” Kumar told analysts.

Cognizant reported a trailing 12-month Total Contract Value (TCV) of $26.2 billion, signing five $100 million deals and two $90 million deals in Q2.

The firm’s headcount decreased by 8,100 sequentially and 3,300 year-on-year, ending Q2 with 336,300 employees. Attrition fell by 6.3 percentage points to 13.6% on a trailing 12-month basis. Kumar noted a historic “return of returnees,” referring to former employees rejoining the company.