Will the IT consulting share price rout ever end?

{"text":[[{"start":7.2,"text":"Since Anthropic launched its cyber security-busting AI model Mythos in April, Accenture has fielded more than 1,000 inquiries from clients panicked about cyber defence. But while executives at the world’s largest listed IT consultancy toasted the lucrative business, Wall Street slashed 10 per cent off Accenture’s shares."}],[{"start":29.65,"text":"The pattern is the same every time a big advance in AI is announced, prompting a lurch downward for IT consulting shares and one of the stock market’s most ferocious debates: is AI a once-in-a-generation bonanza for IT consultants, or an existential threat? "}],[{"start":47.75,"text":"Accenture has long thrived on technological disruption. It advised companies adopting fledgling enterprise software in the 1980s, then reinvented itself to emerge as a winner from the shift to the cloud and the digital transformation triggered by the Covid-era work-from-home boom."}],[{"start":64.65,"text":"Manish Sharma, its chief strategy and services officer, said AI was creating “entirely new categories of work that simply did not exist before” as well as providing a tailwind for its business that will last years."}],[{"start":77.35000000000001,"text":"But investors fear this time is different."}],[{"start":80.9,"text":"“What the current stock price is reflecting is a pretty significant degree of concern that they are a net loser from AI,” said Jason Kupferberg, IT services analyst at Wells Fargo Securities."}],[{"start":null,"text":"

"}],[{"start":94.05000000000001,"text":"Accenture shares have more than halved in less than 18 months on the fear that AI could replace many of the tasks carried out by its 786,000-person workforce, or at least mean the company can do them in a fraction of the time, forcing it to slash the bills it sends clients. Cognizant Technology Solutions is down 43 per cent from its high over roughly the same period. India’s Infosys and Tata Consultancy Services are down 41 per cent and 49 per cent, respectively."}],[{"start":125.70000000000002,"text":"IT consultants offer services that range from advising on technology strategy, through systems implementation to outsourced back-office work. Revenue in the sector continues to grow, though not dramatically faster since ChatGPT was launched. Source Global estimates the “technology and innovation” segment of the US consulting market grew 7 per cent in 2024, 3 per cent last year and is on course for 6 per cent in 2026. Consulting companies have all complained that discretionary spending by clients remains subdued."}],[{"start":158.95000000000002,"text":"For companies thinking of putting a new project out to bid, “it pays to wait”, said Surinder Thind of Jefferies, since, with every new AI model launch, the time it takes to complete a major IT consulting project gets dramatically shorter."}],[{"start":172.00000000000003,"text":"“What we’re experiencing in technology is not unlike the way consumers behave in a deflationary cycle. The market is beginning to predict that we’re now approaching, at an industry level, negative revenue growth.”"}],[{"start":null,"text":""}],[{"start":183.60000000000002,"text":"IT consulting is hardly the only stock market sector hit by the rise of AI. The “Software-as-a-Service” companies whose technology they implement — the likes of SAP or Workday — have sold off even harder, as investors bet AI will replace many such companies in what is being called a “SaaS-pocalypse”."}],[{"start":203.60000000000002,"text":"But executives at the biggest consultancies openly express their frustration."}],[{"start":208.10000000000002,"text":"Ravi Kumar, chief executive of Cognizant, said consultants would be instrumental in helping companies transform using AI, and gave short shrift to the idea that new models were so easy to use that companies could implement them themselves."}],[{"start":222.15000000000003,"text":"“Never happened,” he said. “A bridge is needed when you have a transformation, and we are actually a bridge. The bigger the bridge, the more complex the bridge is, the more is the value for us.”"}],[{"start":234.65000000000003,"text":"Accenture’s Sharma added that clients it helped through previous waves of technological change are launching new modernisation projects."}],[{"start":242.95000000000005,"text":"“AI is acting as a catalyst that accelerates the foundational work our clients need to do to use advanced AI responsibly and at scale, from modernising data to strengthening operational technology and cyber security,” he said."}],[{"start":null,"text":""}],[{"start":257.20000000000005,"text":"No one doubts, however, that AI will significantly disrupt the IT consultancies’ business model. It could also usher in powerful competitors, if giants such as OpenAI and Anthropic build out their own advisory arms."}],[{"start":272.30000000000007,"text":"First on the chopping block is a pricing model that relies on billing by the hour for an army of consultants. Cognizant, for example, is experimenting with “tokenised” pricing that tiers its fees based on the balance of human and AI agents working on a project."}],[{"start":288.1000000000001,"text":"Across the sector, executives also expect more projects to be priced based on the outcome they produce — money saved by helping a client automate its business processes, or revenue growth spurred by a new AI marketing technique, for example."}],[{"start":302.75000000000006,"text":"These changes hold out the hope consultancies can make up in profit margin some of what they lose if work can be done in less time."}],[{"start":311.05000000000007,"text":"Accenture has also increased its budget for acquisitions, looking for products and services it can sell that do not need armies of employees. Recent examples include Ookla, whose products help companies optimise their internet connectivity, and Faculty, an AI scenario-planning tool for businesses."}],[{"start":329.25000000000006,"text":"PwC has turned some of its advisory services into automated tools that clients can access without necessarily going through its employees. The Big Four firm’s US boss, Paul Griggs, mused to the FT about launching a low-cost subscription service giving cheaper access to PwC expertise via AI."}],[{"start":null,"text":""}],[{"start":348.30000000000007,"text":"Retooling the consulting business model will be challenging enough, but investors have also started to fear a bigger threat."}],[{"start":355.8500000000001,"text":"AI companies such as Anthropic and OpenAI are building “deployment” units that will not only design and sell services to companies but also help integrate them with companies’ existing IT."}],[{"start":368.05000000000007,"text":"Anthropic has formed a joint venture with private equity groups, including Blackstone and General Atlantic, to deploy AI across their sprawling investment portfolios, the FT has reported."}],[{"start":379.45000000000005,"text":"OpenAI went live last month with its $4bn initiative, backed by TPG and Bain Capital, beginning with the acquisition of consulting firm Tomoro. On the day of its announcement, Accenture’s market value fell below $100bn for the first time in six years."}],[{"start":397.40000000000003,"text":"Analysts who are bullish on IT consultants’ shares point out that the AI companies have tiny numbers of people in these deployment arms at this stage, and are also feverishly expanding partnerships with incumbents such as Accenture and the Big Four. KPMG expanded its alliance with Anthropic last week, promising to jointly develop tools for tax and legal clients, for example."}],[{"start":419.85,"text":"AI companies were not just using these partnerships as a temporary route to market, said Kevin McVeigh, an analyst at UBS. Clients were telling them that the likes of Accenture have the broader skills to help clients get value out of AI, he said. “It is their clients deciding to use Accenture.”"}],[{"start":437.3,"text":"The longer-term fear is that, as investor Chamath Palihapitiya put it in a post on X, consultancies are “letting the fox into the hen house”. Once embedded, AI players could push the incumbent consultants to the margins, the theory goes."}],[{"start":453.3,"text":"And new AI-native companies, flush with venture capital, are arriving on the scene almost daily to challenge for a slice of corporate IT budgets, adding still more fuel to the consulting sector’s share price conflagration."}],[{"start":467.15000000000003,"text":"“If we were to start an IT services company today, we wouldn’t start with 800,000 employees, we would start with a handful of employees and AI,” said Bryan Keane, an analyst at Citigroup."}],[{"start":479.20000000000005,"text":"“There are going to be new disruptive IT service companies. Their business model is going to be different. They are going to price differently. Whenever you have that kind of model disruption, it usually has growing pains associated with it.”"}],[{"start":498.75000000000006,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1780393648_8654.mp3"}