GenAI may drive growth from 2026: Moshe Katri

The recent financial performance and future outlook of Accenture provide valuable insights into the broader trends shaping the global technology services sector. Investors and industry watchers are keenly observing how cost-efficiency initiatives and discretionary technology investments are evolving amid ongoing economic uncertainties. wiht early indications of increased spending on growth-oriented projects, the market is cautiously optimistic about a potential turnaround. Understanding these dynamics is crucial for stakeholders aiming to navigate the shifting landscape of IT services and capitalize on emerging opportunities.

Current Market Dynamics in Technology Services

According to Moshe Katri, Managing director of Investment Banking at Wedbush Securities, Accenture’s recent earnings reflect a dual trend prevalent across the IT services industry.on one hand, demand for cost optimization and “run-the-business” solutions remains robust, supported by strong pipelines and bookings.on the other, there are promising signs of revival in discretionary or “grow-the-business” spending, which had been subdued over the past few years due to macroeconomic and geopolitical challenges. This gradual shift suggests that companies are beginning to invest more confidently in innovation and expansion.

This emerging recovery in discretionary technology expenditure coudl mark a pivotal moment for the global IT services market, potentially gaining momentum in 2026. However, the scale and sustainability of this rebound remain uncertain, with manny firms adopting a cautious approach as they assess the evolving economic surroundings.

Generative AI: A Game-Changer for IT Growth

One of the most transformative forces identified by Katri is the rise of generative AI (GenAI). While AI-related activities are currently integrated across various projects and not always distinctly reported, the true financial impact will hinge on weather GenAI initiatives transition from experimental pilots to widespread, scalable deployments. Enterprises are heavily investing in data engineering and infrastructure upgrades to become GenAI-ready, laying the groundwork for accelerated spending once these projects reach full production.

Beyond revenue implications, GenAI is also reshaping service delivery models. There is a noticeable shift toward fixed-price contracts and a decoupling of revenue growth from traditional headcount increases. This evolution is critical for IT firms aiming to maintain competitiveness and relevance in the rapidly changing technological landscape.

Positioning of Tier-I Offshore IT Firms

Tier-I offshore IT service providers,especially leading Indian IT companies,are strategically positioned to benefit from these industry shifts.Thier aggressive reskilling initiatives and extensive experience navigating previous technology cycles provide them with a competitive edge. These firms are well-equipped to adapt to new technologies like GenAI and capitalize on the anticipated growth in discretionary IT spending.

Valuation Trends and Investment Outlook

From a valuation perspective, Katri highlights notable potential for rerating within the IT services sector if growth accelerates. Currently, Indian IT stocks trade at a premium compared to their US counterparts on a price-to-earnings basis. Though, enterprise value to EBITDA (EV/EBITDA) multiples have contracted sharply, now hovering around 8 to 10 times, down from mid-teen levels approximately 18 months ago-a correction of nearly 40 to 50 percent.

This valuation adjustment suggests considerable upside if revenue growth rebounds as expected.Reflecting this optimism, Accenture’s shares have appreciated by about 15% over the last quarter, signaling improved market sentiment. Nonetheless, investors are likely to await additional quarterly data to confirm a sustained recovery, with the strength of the discretionary spending rebound remaining a key variable.

Important Facts: Key points to Remember

• Accenture’s recent earnings indicate strong demand in cost optimization and early recovery in discretionary IT spending.
• Discretionary technology investments are expected to gain momentum starting in 2026, marking a potential industry inflection point.
• Generative AI (GenAI) is poised to drive the next phase of growth, contingent on scaling pilot projects to full production.
• Investment in data engineering and infrastructure is critical for enterprises to become GenAI-ready.
• GenAI is influencing delivery models, promoting fixed-price contracts and reducing reliance on headcount growth.
• Leading Indian IT firms are well-positioned due to aggressive reskilling and experience with technology cycles.
• IT services sector EV/EBITDA multiples have fallen to 8-10 times from mid-teens levels 18 months ago,a 40-50% correction.
• Accenture’s stock has risen approximately 15% in the past three months amid improving investor sentiment.
• Investors remain cautious, awaiting further quarterly results to confirm a durable recovery in discretionary spending.
• Macro and geopolitical uncertainties continue to influence IT spending patterns globally.

Frequently Asked Questions

Q: What are the main drivers of demand in the IT services sector currently? The sector is primarily driven by strong demand for cost optimization (“run-the-business”) services and emerging growth in discretionary or innovation-focused spending.

Q: How is generative AI expected to impact IT services companies? Generative AI is anticipated to accelerate growth by moving from pilot projects to large-scale deployments, reshaping delivery models and increasing infrastructure investments.

Q: Why are Indian IT firms considered well-positioned in the current market? Indian IT companies benefit from aggressive reskilling programs and extensive experience managing previous technology cycles, enabling them to adapt quickly to new trends like GenAI.

Q: What does the recent valuation correction in IT stocks imply for investors? The 40-50% drop in EV/EBITDA multiples suggests significant upside potential if revenue growth picks up, making the sector attractive for long-term investment.

Q: When might we expect to see a sustained recovery in discretionary IT spending? Signs of recovery are expected to become more apparent in 2026, though the exact strength and timing remain uncertain and dependent on broader economic conditions.