Nomura reiterates a 'Buy' rating on Nasdaq-listed Cognizant Technology Solutions, forecasting a significant 34% upside. The global brokerage highlights steady execution, improving margins, and robust deal activity. Cognizant's Q4 FY25 results surpassed expectations across revenue, margins, and EPS, driven by North America and financial services. Full-year growth also beat guidance, solidifying its position among IT service providers.
Q4 Performance Surpasses Expectations
Nomura's bullish stance on Cognizant Technology Solutions is underpinned by a strong December quarter performance that exceeded analyst projections. The IT services giant reported an 18.7% year-on-year rise in net profit to $648 million for the December 2025 quarter. Revenue grew 3.8% year-on-year in constant currency, hitting $5,333 million, outperforming the company's own guidance range of 2.5-3.5%.
Growth Drivers Identified
The brokerage firm pointed to North America and the financial services sector as key growth engines. North America saw 4.2% year-on-year growth in constant currency, while the financial services segment posted an impressive 9.3% year-on-year increase. This segment strength signals a rebound in discretionary spending among certain clients, even amid broader economic caution.
Margin Recovery and Efficiency Programs
Cognizant's adjusted operating margin reached 16%, a 30 basis point improvement year-on-year and above Nomura's estimate of 15.7%. This margin expansion is attributed to the company's 'NextGen' initiative, which focuses on internal efficiencies and cost savings, further bolstered by the depreciation of the Indian rupee. Utilization levels remained strong at 83%.
FY26 Outlook and AI Focus
Looking ahead, Cognizant has guided for 4-6.5% year-on-year revenue growth in constant currency for FY26, with an anticipated inorganic contribution of approximately 150 basis points. Nomura considers this organic growth rate of about 3.8% to be reasonable given current macroeconomic uncertainties. The company is actively engaged in artificial intelligence, with around 4,000 live AI assignments across its client base, a trend Nomura believes will drive future demand for optimization and vendor consolidation deals.
Valuation and Target Price
Despite making minor adjustments to its FY26-27 earnings estimates due to a slightly higher tax rate, Nomura's projections remain above Bloomberg consensus. The brokerage firm has set a target price of $100 for Cognizant, a marginal reduction from its previous $102 target, while firmly maintaining its 'Buy' recommendation. This valuation is based on 17 times first-half FY27 earnings per share.
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