Cognizant Technology Solutions Sees Possible AI Pricing Relief in 2027

Key Points

• Cognizant expects AI-related pricing pressure to ease in the second half of 2027, as demand for AI-enabled services such as cybersecurity and application modernization grows. CFO Jatin Dalal cautioned that the impact on growth is too early to quantify and that AI could create further deflation risks.
• Trailing 12-month bookings grew 4%, below the company’s preferred pace, but bookings have shifted toward new business, which can add more revenue than renewals. Renewal economics have been broadly stable since early 2026—a key assumption behind the more optimistic 2027 outlook.
• AI is already supporting growth in several service lines; Cognizant’s banking and financial services business grew 12% despite pricing pressure. Greater offshoring and retained productivity gains could modestly boost gross margins, though AI inference costs may affect the outcome.

Cognizant Technology Solutions NASDAQ: CTSH could see relief from artificial intelligence-related pressure on its services business in 2027 as new AI-driven demand grows, though the outlook remains uncertain, Chief Financial Officer Jatin Dalal said at Bank of Montreal’s Tech Conference.

Dalal said AI-related deflation in application services was most intense in late 2025 and throughout 2026. He expects the pressure on the industry to ease by the second half of 2027, if not earlier, while new services such as AI cybersecurity and legacy application modernization begin to expand.

“The burden should probably come down of deflation in second half, and energy of new services, which have come into its existence because of AI, should begin to take off,” Dalal said. He cautioned that it was too early to quantify how those forces would affect growth.

Bookings and renewal trends

Cognizant’s trailing 12-month bookings grew 4%, a rate Dalal said was below what the company would like. He noted that the comparison included three large deals signed in 2025 and that nearly all new bookings had already gone through an AI-related pricing cycle.

New and expansion business has also become a larger share of bookings. Dalal said the mix had shifted about 10 percentage points toward new business, resulting in an approximately even split between new business and renewals. New contracts can add more revenue than renewals, which can reset at lower values because of deflation and productivity improvements, he said.

Asked about an example in which a $100 renewal becomes $90, Dalal said renewal economics had been broadly stable since the beginning of 2026, after weakening compared with 2022 and 2023. He agreed that continued stability was an important assumption behind his more encouraging view of 2027.

Dalal said Cognizant has what it needs to meet its guidance for 2026 and expects to discuss its 2027 revenue trajectory at the beginning of January. Sales feedback on customers’ next-year budget cycles was broadly neutral, he added.

AI opportunities and risks

Dalal said more advanced AI models had so far produced little incremental deflation in coding after the initial wave of adoption. But he acknowledged that AI could expand into types of work where it is not currently applicable, creating additional risk.

Four service lines are beginning to benefit from AI-related demand: business process outsourcing, infrastructure, cybersecurity and industry solutions, he said. Cognizant is working jointly with Anthropic on a large telecommunications project to modernize core technology, Dalal said. He also pointed to a large insurance platform the company recently took over to modernize and operate.

Financial services has traditionally been a leading indicator of technology demand, Dalal said. Cognizant’s banking and financial services business is growing 12% despite AI-related deflation, supported by customer spending and market-share gains, he said. He expressed hope that other industries would follow.

Dalal also described business process outsourcing growth as sustainable, saying AI is opening opportunities for customers to automate work and outsource processes. He expects the resulting market opportunity to outweigh compression in existing revenue.

Contracts, margins and staffing

Fixed-price contracts account for 58% of Cognizant’s revenue, and Dalal expects that share to rise gradually. He distinguished those contracts, which set a price for completing a project, from outcome-based contracts tied to a business result. Outcome-based work remains a very small portion of revenue for Cognizant and the industry, he said.

Fixed-price arrangements carry greater delivery risk and require close oversight, Dalal said. They can also allow Cognizant to retain productivity gains achieved after a contract is signed, while much of the productivity benefit visible at signing generally goes to the customer.

If the business mix remains broadly unchanged, Dalal said greater offshoring, staffing changes and retained AI productivity could provide a modest boost to gross margin. That outlook could change if AI inference costs flow through Cognizant’s books as part of bundled offerings, though he said it was too early to know the margin effect.

Asked whether Cognizant would have more or fewer employees in three years, Dalal did not give a forecast. He said the answer would depend on how much the company grows as virtual agents take on a larger share of work: substantial expansion could support human hiring, while slower growth could mean a smaller workforce.

About Cognizant Technology Solutions (NASDAQ:CTSH)

Cognizant Technology Solutions is a professional services company that helps businesses use technology to modernize operations and develop digital capabilities. Its services include IT consulting, application development and maintenance, cloud and infrastructure services, data and artificial intelligence, engineering, and business process services. The company serves clients across industries including financial services, healthcare, manufacturing, communications, media, and retail. Its operations span North America, Europe, and Asia-Pacific, with a significant global delivery network.

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