Goldman Sachs has identified IT services giants IBM (NYSE: IBM) and Globant SA (NYSE: BALLOON) as having “compelling” risk-reward profiles as the fundamental outlook for the industry begins to improve. According to analyst James Schneider, the industry is currently experiencing a cyclical correction driven by IT spending constraints due to macroeconomic pressures across various sectors the industry is involved in. Additionally, there is a near-term shift in spending priorities towards AI-focused CapEx and away from software and services.
Schneider also mentioned that investors are concerned about the threat generative AI poses to the IT services sector. However, he believes that generative AI will ultimately benefit the sector in the long run. He pointed out that while AI holds great potential for the industry, corporations will need to address technical debt before they can fully realize the benefits of AI.
Goldman Sachs has Buy ratings and $200 price targets for both IBM and Globant. In pre-market operations, IBM’s stock was up by 1.5%, while Globant’s stock saw little change. The investment firm’s bullish stance on these companies reflects their optimism about the sector’s future prospects.
Overall, IBM and Globant are positioned well to weather the current challenges facing the IT services industry and capitalize on the opportunities presented by AI. Despite lingering concerns about generative AI, Goldman Sachs believes that these companies have strong potential for growth and profitability in the long term. Investors may need to be patient as corporations work through technical debt, but the benefits of AI are expected to outweigh the challenges in the long run.
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