Goldman Sachs analysts recently evaluated the American IT services sector in a report, examining eight companies and noting promising opportunities in IBM and Globant. The analysts acknowledged current challenges in the sector, such as macroeconomic pressures and a shift towards AI-focused spending, but they believe that fears about AI replacing IT services are exaggerated. Instead, they see AI as a beneficial tool, especially for business process services.
The analysts’ analysis focuses on distinguishing between cyclical risks, which are tied to economic cycles, and secular risks, which are more long-term trends. They argue that the market is currently blending these factors, creating potential opportunities for specific companies.
Goldman Sachs uses its “IT Services Investment Framework” to evaluate companies based on factors like growth potential, profitability, capital allocation, and stock positioning. Companies with insufficient market appreciation for sustainable growth or potential cyclical recovery receive Buy ratings. Accordingly, IBM and Globant were given Buy ratings with price targets of $200 each. On the other hand, Thoughtworks and TaskU received Sell ratings with price targets of $2.50 and $12 respectively, reflecting a less attractive risk/reward profile. The remaining companies (Accenture, Cognizant, EPAM Systems, and Softchoice) were rated as Neutral.
Overall, the report suggests that despite current challenges, there are opportunities for growth in the IT services sector. By accurately assessing the risks and rewards of different companies, investors can make informed decisions about where to invest their funds. IBM and Globant emerge as particularly promising choices based on Goldman Sachs’ evaluation.
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