High single-digit growth to still elude IT firms for some time: Cognizant

Cognizant's Surya Gummadi predicts IT services growth will return once enterprises deploy AI across technology stacks, though macro dynamics may delay this for some time

The IT services industry will only return to high single or low double-digit growth rates once enterprises infuse artificial intelligence (AI) across their technology stack and deploy agents across the value chain, a top Cognizant executive said.

 

“When that happens, the market should pivot back to that growth rate. But whether it is two quarters from now or three quarters from now, it depends on a lot of other macro dynamics that we’re dealing with today,” Surya Gummadi, president of Cognizant Americas, said at an investor conference.

 

All IT service providers are currently using AI, Gen AI, and agentic AI to lower costs, improve efficiency, and enhance productivity in existing deals and renewals as customers try to improve their technology platforms. However, this has also led to fierce competition among providers, which has inevitably impacted margins.

 

Gummadi said that the pricing scenario in this segment remains highly competitive. However, as enterprises use more AI and agents—who need specialised skill sets with domain and contextual knowledge—pricing will become more premium in the future.

 

As IT delivery models change in the age of AI, from input and the number of people to more output and outcome-based models, pricing models will also undergo a tectonic shift. Experts and industry executives have said that the model will resemble a diamond rather than a traditional pyramid, be more platform-driven rather than people-driven, and, instead of services, will offer IP-infused solutions as Gen AI presents many productivity possibilities.

 

Cognizant, according to Gummadi, just like other peers, has been pricing at the time-and-material or fixed rate. However, it will need to pivot to a hybrid model where there is a digital workforce—digital agents—along with a physical workforce. 

 

“These pricing models will evolve. As we started doing some of these large deals with vector two and vector three components involved, we are working on some of those pricing models where we pivot more towards value, outcome-driven, hybrid models with digital and physical workforces,” he explained.

 

When asked about financial services and healthcare—two of the company’s biggest business verticals—Gummadi said the former, especially the insurance business, continues to see green shoots or demand pickup in small projects and discretionary spend.

 

He acknowledged that Cognizant did not meet expectations in the financial services business over the last three years due to macroeconomic issues and internal problems. “We had our own Cognizant-centric structural issues when it came to financial services. Earlier, financial services was all lumped as one unit. So, we have broken that down into several units to bring in the sub-segment focus. Our strategy in financial services is now well aligned with the market in terms of solutions that we offer. As a result, we saw a good rebound in the segment after many years.”

 

Healthcare, however, continues to be a mixed bag as insurers remain cautious about government spending, while life sciences companies remain hesitant due to trade and tariff issues.

 

Cognizant’s net profit for its second quarter rose 14 per cent to $645 million, as it earned more from its core business verticals, including healthcare and banking, financial services, and insurance (BFSI). The Nasdaq-listed company’s revenue was up 8.1 per cent to $5.25 billion for the quarter ended 30 June.