17 February 2026 Midcap Research When AI threatens the moat #3 - The next shoes to drop Marie Line Fort +33 1 42 13 85 21 marie-line.fort@bernsteinsg.com Philippe Lorrain +33 1 42 14 75 16 philippe.lorrain@bernsteinsg.com Flavien Baudemont +33 1 42 14 81 51 flavien.baudemont@bernsteinsg.com Derric Marcon +33 1 58 98 06 30 derric.marcon@bernsteinsg.com Harry Martin, CFA +44 20 7676 8965 harry.martin@bernsteinsg.com William Woods +44 20 7676 6806 william.woods@bernsteinsg.com Richard Nguyen +33 1 42 13 54 22 ...

Core Insights - EPAM Systems, Inc. reported strong fourth-quarter results for 2025, with earnings of $3.26 per share, exceeding estimates by 3.16% and reflecting a 14.8% increase from the previous year [1][9] - The company's fourth-quarter revenues reached $1.41 billion, surpassing the consensus estimate of $1.39 billion, and showing a year-over-year growth of 12.8% driven by advancements in artificial intelligence [2][9] Financial Performance - Revenue growth was observed across all industry verticals except for Business Information & Media, with Financial Services generating $336.4 million (up 19.8% year-over-year) and Consumer Goods, Retail & Travel at $277.9 million (up 10.9% year-over-year) [3][4] - Software & Hi-Tech revenues were $214.9 million (up 18.1% year-over-year), while Life Sciences & Healthcare revenues increased to $155 million (up 2% year-over-year) [4] - Non-GAAP gross profit rose 11% year-over-year to $446.8 million, with a gross margin of 31.7%, down 50 basis points [5] - Non-GAAP operating income increased by 10.5% year-over-year to $230 million, with an operating margin of 15.2%, down 150 basis points [5] Balance Sheet and Cash Flow - As of December 31, 2025, EPAM had cash and cash equivalents of $1.3 billion, an increase from $1.24 billion as of September 30, 2025, with long-term debt at $25 million [6] - The company generated operating cash flow of $282.9 million and free cash flow of $268.1 million in the fourth quarter, totaling $654.9 million and $612.7 million for the full year, respectively [6] Guidance - For Q1 2026, EPAM expects revenues between $1.385 billion and $1.400 billion, indicating a year-over-year growth of 7% at the midpoint, with organic constant currency growth anticipated at 2.9% [7][10] - GAAP diluted EPS is projected to be between $1.32 and $1.40, while non-GAAP diluted EPS is expected in the range of $2.70 to $2.78 [8][10] - For the full year 2026, revenue growth is anticipated to be between 4.5% and 7.5%, with organic constant-currency growth expected to be in the range of 3% to 6% [10][11]

Portfolio Strategy Research 6 February 2026 | 5:01AM GMT Strategy Espresso: Tech wreck: Sharp rotations and what is now priced Sharon Bell +44(20)7552-1341 | sharon.bell@gs.com Goldman Sachs International Guillaume Jaisson +44(20)7552-3000 | guillaume.jaisson@gs.com Goldman Sachs International Peter Oppenheimer +44(20)7552-5782 | peter.oppenheimer@gs.com Goldman Sachs International Giovanni Ferrannini +44(20)7051-2589 | giovanni.ferrannini@gs.com Goldman Sachs International Investors should consider this re ...

Investment Rating - The report maintains a BUY rating for ServiceNow, indicating a potential return of over 15% over the next 12 months [17]. Core Insights - ServiceNow reported a total revenue increase of 21% YoY to US$3.57 billion in 4Q25, aligning with Bloomberg consensus estimates. Non-GAAP operating income grew by 26% YoY to US$1.10 billion, exceeding consensus by 3% due to AI-enhanced efficiencies and disciplined expense control [1]. - For FY26E, management guided subscription revenue to increase by 20.5%-21% YoY to US$15.53-15.57 billion, with a further 100bps expansion of both non-GAAP operating profit and free cash flow margin to 32% and 36%, respectively, driven by AI-enabled efficiency gains [1]. - The AI product momentum remains strong, with Now Assist annual contract value (ACV) surpassing US$600 million in 4Q25, ahead of the previous target of US$500 million and on track to reach US$1 billion by FY26-end [1]. - The target price for ServiceNow has been lowered to US$215.00 based on a 40x FY26E EV/EBITDA, down from US$236.00 based on a 45x FY26E EV/EBITDA, reflecting sector valuation impacts due to increased competition from AI and LLM service providers [1][12]. Financial Summary - For FY26E, total revenue is projected at US$15.973 billion, with adjusted net profit expected to reach US$4.518 billion, resulting in an adjusted EPS of US$4.36 [2]. - The company’s market capitalization is approximately US$122.22 billion, with a current share price of US$116.73, indicating an upside potential of 84.2% to the target price [3][4]. - The non-GAAP operating profit margin expanded by 1.4 percentage points YoY to 30.9% in 4Q25, attributed to improved efficiency and disciplined expense control [9]. Growth Projections - Subscription revenue is expected to grow by 20.3% in FY26E, with adjusted net profit growth projected at 23.2% [15]. - The company anticipates a revenue growth rate of 20.5%-21% for FY26E, with further growth expected in subsequent years [1][14]. Valuation - The valuation of ServiceNow is set at US$215.00 per share based on a target EV/EBITDA of 40x for FY26E, which is at a premium to the sector average of 29x, justified by the strong earnings growth outlook [12][13].

Core Insights - IBM exceeded earnings expectations with Q4 revenue of $19.69 billion, a 12.1% increase year-over-year, and EPS of $4.52, up 5.4% from expectations [2] - The company's AI strategy is proving effective, with its generative AI business reaching $12.5 billion, more than doubling from the previous year [2][8] - IBM's Software division grew by 14% to $9 billion in Q4, driven by Red Hat and the WatsonX AI platform, while Infrastructure revenue surged 21% to $5.1 billion [2] Financial Performance - IBM's pre-tax margin (Non-GAAP) was 24.1%, slightly down from 24.3% last year, indicating robust profitability [5] - Free cash flow reached $14.7 billion in 2025, with an expected increase to approximately $15.7 billion in 2026 [5] - Revenue growth for 2026 is projected to be "more than 5%", slightly above analyst consensus of 4.6% [6] Strategic Moves - IBM acquired Confluent for $11 billion in December 2025 to enhance its capabilities in integrating real-time streaming data into AI models [7] - The acquisition positions IBM for a transition from "chatbot AI" to "agentic AI," focusing on self-operating AI agents [7] Market Positioning - IBM's model of charging businesses for AI implementation leads to lower risks and higher margins compared to competitors like Meta and Microsoft, which are heavily investing in infrastructure [4] - The market rewarded IBM for demonstrating valid evidence of AI monetization through consulting income rather than deferred commitments [8] Valuation Considerations - IBM's P/E ratio stands at approximately 27.5x, which is considered high given its growth profile and free cash flow generation [9] - Current stock price of $315 reflects significant optimism about future cash flow growth, although it may be seen as expensive compared to competitors [9] Competitive Landscape - IBM is positioned as a leader in enterprise production AI, focusing on secure and regulatory-compliant AI solutions for banks, manufacturers, and governments [11] - Competition exists from Microsoft Copilot, Amazon Bedrock, and Google Gemini in the enterprise AI sector [13]

Financial Performance - IBM reported a net income of $5.6 billion for Q4 2025, a 93.1% increase from $2.9 billion in Q4 2024 [1] - The company's revenue for Q4 2025 was $19.7 billion, marking a 12% increase compared to $17.6 billion in Q4 2024 [1] - For the full year 2025, IBM's net income reached $10.6 billion, a 76.7% increase from $6 billion in 2024 [1] - IBM's total revenue for 2025 was $67.5 billion, an 8% rise from $62.7 billion in 2024 [1] Cash Flow and Projections - IBM's net cash from operating activities in 2025 was $13.2 billion, with free cash flow of $14.7 billion [2] - The company anticipates more than 5% revenue growth at constant currency for 2026, with free cash flow projected to rise by approximately $1 billion year-over-year [2] Segment Performance - The Software segment reported revenues of $9 billion in Q4 2025, a 14% increase, driven by Hybrid Cloud (10% growth), Automation (18% increase), Data (22% surge), and Transaction Processing (8% rise) [3] - The Consulting segment achieved revenues of $5.3 billion, reflecting a 3% growth, with Strategy & Technology increasing by 2% and Intelligent Operations growing by 5% [4] - IBM's Infrastructure segment reported revenues of $5.1 billion, a 21% increase, largely fueled by a 29% rise in Hybrid Infrastructure and a 67% growth in IBM Z [4] Cash Position - IBM generated $4 billion in net cash from operating activities during Q4 2025, with free cash flow at $7.6 billion [5] - At the end of Q4 2025, IBM held $14.5 billion in cash and marketable securities, with total debt at $61.3 billion [5] Strategic Focus - IBM's CEO highlighted the company's robust performance in 2025, emphasizing a 6% revenue growth and significant achievements in free cash flow [6] - The company is strategically advancing as a software-led hybrid cloud and AI platform, with software now constituting 45% of its business, up from 25% in 2018 [7] - IBM's strategy aligns with structural trends in technology investments, focusing on hybrid cloud, AI, and mission-critical infrastructure as essential platforms for business operations [8]

Market Overview - The BSE benchmark increased by 720.56 points, or 0.84 percent last week [1] Company Valuations - Reliance Industries saw its market valuation rise by Rs 45,266.12 crore, reaching Rs 21,54,978.60 crore, maintaining its position as the most valued firm [6] - The market valuation of State Bank of India increased by Rs 30,414.89 crore, bringing its total to Rs 9,22,461.77 crore [6] - Larsen & Toubro's valuation surged by Rs 16,204.34 crore to Rs 5,72,640.56 crore [4] - Hindustan Unilever's market valuation climbed by Rs 14,626.21 crore to Rs 5,51,637.04 crore [4] - HDFC Bank's market capitalisation edged higher by Rs 13,538.43 crore to Rs 15,40,303.87 crore [5] - ICICI Bank's valuation advanced by Rs 3,103.99 crore to Rs 9,68,773.14 crore [5] - Bharti Airtel's market capitalisation increased by Rs 570.21 crore to Rs 12,01,262.53 crore [6] Valuation Erosion - Tata Consultancy Services (TCS) experienced a decline in market valuation by Rs 10,745.72 crore, reducing its total to Rs 11,75,914.62 crore [6] - Infosys saw a decrease in market capitalisation by Rs 6,183.25 crore to Rs 6,81,635.59 crore [6] - Bajaj Finance's market valuation dropped by Rs 5,693.58 crore to Rs 6,16,430.43 crore [6] Overall Market Capitalisation - The combined market capitalisation of seven of the top-10 most-valued firms surged by Rs 1,23,724.19 crore, reflecting an optimistic trend in equities [6]

Market Performance - The BSE Sensex declined by 42.64 points or 0.05% to close at 85,524.84, ending a two-day gaining streak [2] - The index reached a high of 85,704.93 and a low of 85,342.99 during the trading session [2] - The NSE Nifty index saw a marginal increase of 4.75 points or 0.02%, closing at 26,177.15 [2] Sector Performance - Major laggards among Sensex firms included Infosys, Bharti Airtel, Adani Ports, Sun Pharma, Tech Mahindra, Eternal, Axis Bank, and Maruti [2] - Gainers in the market included ITC, UltraTech Cement, Tata Steel, and HDFC Bank [3] Investor Activity - Foreign Institutional Investors (FIIs) sold equities worth Rs 457.34 crore, while Domestic Institutional Investors (DIIs) purchased equities worth Rs 4,058.22 crore [6] - The market experienced broad-based profit-booking, with a lack of fresh positive triggers contributing to the flat session [7] Global Market Influence - Asian markets showed mixed results, with South Korea's Kospi, Japan's Nikkei 225, and Shanghai's SSE Composite indices closing positively, while Hong Kong's Hang Seng index ended lower [6] - Brent crude oil prices increased by 0.10% to $62.13 per barrel, indicating some support for financials and FMCG sectors [8] Future Outlook - Investors are preparing for the upcoming earnings season and are closely monitoring Federal Reserve policy expectations, with increasing probabilities of rate cuts for the January meeting [9]

Market Valuation Changes - The combined market valuation of six of the top-10 most-valued firms increased by ₹75,256.97 crore last week, with Tata Consultancy Services (TCS) and Infosys being the largest contributors [1] - TCS's market valuation rose by ₹22,594.96 crore to reach ₹11,87,673.41 crore, while Infosys added ₹16,971.64 crore, bringing its valuation to ₹6,81,192.22 crore [2] - The market capitalization of State Bank of India increased by ₹15,922.81 crore to ₹9,04,738.98 crore, and Reliance Industries saw a rise of ₹12,314.55 crore to ₹21,17,967.29 crore [2] Declines in Valuation - HDFC Bank's market capitalization fell by ₹21,920.08 crore to ₹15,16,638.63 crore, while LIC's valuation decreased by ₹9,614 crore to ₹5,39,206.05 crore [3] - ICICI Bank's market capitalization declined by ₹8,427.61 crore to ₹9,68,240.54 crore, and Bajaj Finance's valuation dipped by ₹5,880.25 crore to ₹6,27,226.44 crore [3] Ranking of Firms - Reliance Industries remains the most-valued firm, followed by HDFC Bank, Bharti Airtel, TCS, ICICI Bank, State Bank of India, Infosys, Bajaj Finance, Larsen & Toubro, and LIC [4]

Core Insights - Microsoft has formed partnerships with four major Indian IT companies—Cognizant, Infosys, TCS, and Wipro—to accelerate the adoption of agentic AI [1][3] - These companies will collectively deploy over 200,000 Microsoft Copilot licenses, marking a significant milestone in enterprise-scale AI adoption [2] - Microsoft plans to invest $17.5 billion in cloud and AI infrastructure in India from 2026 to 2029 [2] Microsoft-India Alliance - The collaboration aims to embed AI into core operations, transforming how organizations operate and innovate [3] - Companies are becoming Frontier Firms by redesigning workflows around human-agent collaboration, impacting various functions such as delivery, sales, finance, HR, and customer engagement [3][5] Cognizant's Role - Cognizant is expanding its partnership with Microsoft to make GenAI and Copilots available to millions, enhancing enterprise operations and employee experiences [7] - As "client zero" for Copilot, Cognizant aims to refine AI solutions for greater value and innovation [7] Infosys Initiatives - Infosys is implementing one of the largest Copilot deployments, enhancing productivity and decision-making through AI integration [9] - The collaboration with Microsoft is strategic, shifting Infosys to a human+ agent powered AI-first enterprise [11] TCS Developments - TCS is transforming its Sales, HR, and Finance functions through AI, providing personalized AI coaching to all employees [12] - The partnership with Microsoft supports the digitization of processes and autogeneration of code [12] Wipro's Strategy - Wipro is launching the Microsoft Innovation Hub to advance its Frontier Firm ambition, deploying over 50,000 Copilot licenses [13] - The collaboration focuses on embedding agentic AI across workflows to enhance customer experience and productivity [13][14]