Cognizant pips Indian peers but warns of a tech spending chill

Cognizant Technology Solutions Corp. outpaced its Indian peers in a difficult quarter, but that wasn't enough to reassure investors. The Nasdaq-listed information technology (IT) company's shares tumbled after it trimmed the upper end of its 2026 growth forecast, warning that healthcare and consumer-facing clients were pulling back on discretionary spending.

The muted outlook underscores how even stronger performers are struggling to shake off the uncertainty clouding technology spending.

The company, which has about three-fourths of its employees in India, ended the September quarter with $5.66 billion in revenue, up 3.3% sequentially and 4.6% on a yearly basis. Almost half of its incremental revenue came from communication, media and technology, which together make up about a fifth of its business.

The company’s performance was in line with analysts' expectations. According to 23 analysts polled by Bloomberg, it was expected to report a revenue of $5.65 billion this quarter.

The company’s shares fell more than 5.6% as on the Nasdaq as of 8:41 pm Indian Standard Time after the company announced its third-quarter earnings before US market hours on Thursday.

The jitters came on the back of the company’s lacklustre outlook, as the company does not expect its revenue to grow faster than last year’s 7%.

The company narrowed its full-year growth outlook from the preceding quarter and now expects to end the year with a growth of 4.5-4.9%, from 4.4-5.9% it had projected in July. This is the first time in three years that the company has lowered its growth outlook on the upper end in the third quarter.

The company's management said it sees tougher days ahead.

“We achieved these results in a complex demand environment. Although macroeconomic conditions were largely stable in the third quarter, we are seeing the macro uncertainty weigh more on discretionary spending in the fourth quarter, particularly in healthcare and consumer-facing sectors,” said chief executive Ravi Kumar at the post-earnings analyst call.

The Teaneck, New Jersey-based company fared better than its Indian peers in July-September. While the revenues of Tata Consultancy Services Ltd, Infosys Ltd, and HCL Technologies Ltd grew 0.2%, 1.2%, and 2%, respectively, Wipro Ltd ended with a revenue decline of 0.1% on a sequential basis. Cognizant follows a January-December financial calendar while Indian IT has an April-March one.

Cognizant’s management commentary was also in line with peers.

Earlier this month, TCS and Wipro’s management said the demand environment remains unchanged, adding that non-essential tech spending is under scrutiny. Infosys’s management said the demand environment was of a “different type,” whereas HCL Tech’s management said the demand environment remains fluid, as it is influenced by various factors.

Cognizant expects 150 basis points, or about a third of its growth in the current fiscal from acquisitions, same as it had outlined in the preceding quarter. A basis point is a hundredth of a percentage point. The company last week announced the acquisition of Australian IT firm, DyFlex Solutions, for an undisclosed amount, but it did not spend on any acquisitions during the September quarter.

Significantly, its cash paid to shareholders through share repurchases and dividends totalled $419 million, the lowest since the quarter ended March 2025. This comes at a time when the company’s shares have fallen 20% since the start of the year on fears that the rise of artificial intelligence (AI) may wipe out the tech sector’s relevance. However, the company has fared better than its Indian peers, including TCS, Infosys and Wipro, whose shares fell between 23-34% on BSE since January.

Another sore spot for investors was the company’s profitability. Its operating margin fell 50 basis points sequentially to 15.4% as Project Leap costs were no longer offset by a one-time provident fund write-back, as they were done in Q2.

This makes it the second company after Infosys to report a decline in operating margins this quarter. Cognizant had in April announced Project Leap, a transformation programme involving increased investments in AI, integrated digital offerings and workforce upskilling.

Cognizant's net profit fell 1.4% sequentially to $627 million.

The management said service lines such as BPO, infrastructure, cybersecurity and industry solutions that are benefiting from AI tailwinds account for approximately 40% of its portfolio.

“The pivot is switching from productivity to growth imperatives using AI, and the rebaselining of productivity has already happened to a large extent," Kumar said. "It's reflective in our bookings because our bookings are more new, less renewal because that is reflective of how customers are spending more on innovations related to AI.”

Kumar said clients' non-essential spending would come from “macro stability, and I see that happening in 2027 if everything falls in place, and that is 60% of the portfolio because 40% of the portfolio is financial services, which is in good shape.”

In terms of headcount, the company ended last quarter with 359,900 employees, up 3,200 sequentially. It expects to build its local workforce in the US with plans of hiring 1,500 college graduates from the country.

Cognizant marks a year since it announced its intent to list shares in India. On the subject, the management said the company has made “good progress” on the front.

Jas Bardia is a Bengaluru-based business journalist covering India’s information technology (IT) services sector and Global Capability Centres (GCCs). Known for his investigative depth and attention to detail, Jas has a knack for breaking stories on leadership shifts, high-stakes deals, and evolving industry trends long before they hit the mainstream. If the news is anything IT-related, chances are this author has broken it. Before joining Mint in November 2023, Jas honed his financial reporting skills at Bloomberg News in Mumbai, where he covered bonds and currencies following his graduation from the Asian College of Journalism. When he isn’t chasing his next exclusive, Jas is likely scouting the city’s newest culinary spots, cool events, or is immersed in the electric atmosphere of a Bengaluru FC match at the Sree Kanteerava Stadium. Jas has an eye for detail, an ear for history, and a weakness for a great cologne, and values a good conversation as much as a good lead. If you want to talk about your favourite war movie, funny drunk stories, or a supposed “scam”/wrongdoing in a company, get in touch with him at jas.bardia@livemint.com.

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