Cognizant Technology Solutions’ Shares Jump on Strong Q3 Earnings

Core Insights - Cognizant Technology Solutions reported strong earnings and revenue, indicating that its AI strategy is beginning to yield results [1][2] - The company achieved $5.42 billion in revenue for Q3, surpassing the consensus estimate of $5.32 billion by approximately $100 million [2][7] - Earnings per share (EPS) reached $1.39, exceeding the estimated $1.29, marking an 11.2% year-over-year increase [7] Financial Performance - The company experienced a 7.4% year-over-year revenue growth, with an operating margin expansion of 70 basis points to 16.0% [3][7] - North America was a significant contributor to revenue strength, while the Products and Resources segment grew by 12.6% [3] - Health Sciences and Financial Services, the two largest segments, reported growth rates of 5.9% and 6.2% respectively [3] Growth Momentum - This marks the fifth consecutive quarter of year-over-year organic revenue growth, with a sequential expansion of 2.8% in constant currency, the strongest since 2022 [2][8] - The total contract value (TCV) for large deals increased by 40% year-to-date compared to the same period last year, indicating strong client confidence [4] AI Strategy - Cognizant's management emphasized the effectiveness of its "three vector AI builder strategy," which focuses on AI on the edge, AI-led platforms, and AI-powered IP [5] - The company signed six large deals in Q3, bringing the total to 16 for the year, showcasing genuine momentum in demand for AI-led services [4][6] Bookings and Cash Flow - Although bookings declined in the quarter, this is not seen as alarming due to the strength in large deal signings year-to-date [6] - The company reported a net income of $274 million and free cash flow of $1.16 billion [8]