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Americas Technology_ IT Services_ 2025 Outlook_ See a gradually improving cyclical outlook; Upgrade ACN & EPAM to Buy
ACT·2024-12-10 02:48

Industry and Company Overview * Industry: IT Services * Outlook: Gradually improving cyclical outlook for 2025 * Key Drivers: * Improving demand environment: Industry headwinds in major verticals like Financials are abating, and discretionary demand is expected to pick up in 2025. * AI adoption: AI could become accretive to industry growth within 12-18 months as companies transition from proof-of-concept projects to larger projects. * Shifting macro landscape: Potential changes in H-1B visas, scrutiny on government spending, and a possible resolution in Ukraine could impact the industry. Key Company Analysis * Accenture (ACN, Buy, 420PT)∗∗:∗∗∗UpgradetoBuy∗∗:Believedtobewell−positionedtocapturearecoveryindiscretionaryspendingandhasbest−in−classAIcapabilities.∗∗∗Cyclicalheadwindsmoderating∗∗:FinancialServicesandConsultingsegmentsareseeingimprovingconditions.∗∗∗Outsourcingbookingstranslatingtorevenue∗∗:Record−highoutsourcingbookingsareexpectedtodriverevenuegrowthin2025.∗∗∗AIpotential∗∗:SignificantAIinvestmentsandpartnershipspositionthecompanyforpotentialrevenueaccretionby2026.∗∗∗EPAMSystems(EPAM,Buy,420 PT)**: * **Upgrade to Buy**: Believed to be well-positioned to capture a recovery in discretionary spending and has best-in-class AI capabilities. * **Cyclical headwinds moderating**: Financial Services and Consulting segments are seeing improving conditions. * **Outsourcing bookings translating to revenue**: Record-high outsourcing bookings are expected to drive revenue growth in 2025. * **AI potential**: Significant AI investments and partnerships position the company for potential revenue accretion by 2026. * **EPAM Systems (EPAM, Buy, 295 PT): * Upgrade to Buy: Expected to post improving growth in 2025 as discretionary demand for new technology builds. * Differentiated provider of high-end engineering services: Focus on applications and data integration, with a strong engineering edge. * Ukraine resolution potential: A potential resolution in Ukraine could improve growth trends and stabilize revenue per employee. * Cost structure benefits: Potential to rebuild delivery base in Ukraine and revitalize an attractive cost structure. Other Key Points * Discretionary spending improving: Discretionary spending is expected to improve over the course of 2025 as vertical-specific pressures abate. * AI flywheel gaining momentum: AI could become accretive to industry growth within 12-18 months as companies transition from proof-of-concept projects to larger projects. * Shifting macro landscape: Potential changes in H-1B visas, scrutiny on government spending, and a possible resolution in Ukraine could impact the industry. * Top Buy-rated ideas: IBM, Globant, and Accenture are highlighted as companies well-positioned to benefit from the improving IT Services sector. * Top Sell-rated idea: TaskUs is identified as facing headwinds in an increasingly challenged BPO market.