Choosing the Superior AI Stock: CGI vs. Accenture - Kalkine Media

December 01, 2023 07:15 AM EST | By Team Kalkine Media
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As businesses rapidly adopt generative artificial intelligence (AI) to enhance operational efficiencies and expand earnings margins, investors seek opportunities to ride the emerging AI growth wave. Two prominent players in this space are Accenture (NYSE: ACN) and CGI (TSX: GIB.A). While Accenture is a larger global information technology services consultancy, CGI is a Canadian firm that has shown rapid growth in AI-related bookings. Let's analyze which stock may be a better buy for investors looking to profit from the wider adoption of generative AI business processes. This evaluation extends beyond the individual companies to consider the broader dynamics within TSX tech stocks, providing investors with insights into the potential. 
 
Accenture (ACN): 

  • Recognized US$300 million in generative AI-related revenue, with aggressive investments in generative AI capabilities. 
  • Sold 100 generative AI projects in four months and doubled quarterly revenue from generative AI projects. 
  • Plans to launch a network of generative AI studios across North America and execute a US$3 billion (C$4 billion) AI investment plan. 
  • Has announced or closed nine acquisitions in November 2023, mostly in data science, cloud computing, and AI companies. 
  • Generative AI revenue comprised 1.3% of total revenues reported for the past quarter. 

CGI (GIB.A): 

  • A $30 billion business consultancy stock deeply involved in several private and government-related AI projects. 
  • Reported over $175 million in AI-related bookings during the most recent quarter, comprising 5% of quarterly sales or 4.4% of total bookings. 
  • Working on 600 AI projects and announced a $1 billion AI investment plan in July to expand its AI offerings. 
  • AI revenue could comprise a more significant component for CGI compared to Accenture, based on reported figures. 
  • Offers a cheaper option with a forward price-to-earnings (P/E) multiple of 17.9 compared to Accenture's 27. 

Considerations: 

  • Accenture, with its global reach, has a more extensive market coverage, but generative AI revenues still represent a small portion of its vast revenue. 
  • CGI, despite its smaller size, might be more focused on AI revenue contributions, potentially offering a better upside for investors interested in AI growth. 
  • Financial analysts project similar revenue and earnings growth rates for both firms in 2024. 
  • Accenture stock is more expensively priced with a higher forward P/E multiple compared to CGI, making CGI a cheaper option to play the AI upside. 

Conclusion: 

While both Accenture and CGI are aggressively investing in expanding their AI offerings, CGI, with its focus on AI-related bookings and a cheaper valuation, could be a more attractive option for investors seeking exposure to AI growth in the IT consultancy sector. The choice between the two may depend on factors such as risk tolerance, investment strategy, and preference for a potentially cheaper entry point. Investors should carefully assess each company's AI-related initiatives, financials, and growth prospects before making investment decisions. 


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