Pzena Investment Management Q2 2026 Highlighted Holdings: IT Services

The industry has sold off on fears that AI will erode demand for third-party technology services through price deflation and disintermediation, driving a sharp compression in forward earnings multiples. Trading at 4.5x or less of our estimate of normal earnings, these businesses are priced as if in terminal decline. As work becomes AI-enabled, providers are instead signing fixed-price and outcome-based contracts, where the client pays for a result rather than hours. Demand is holding up, with trailing-12-month bookings up 11% from a year ago, as new work outpaces the price deflation on each contract . At today's valuations, investors are being paid for the risk that the transition proves arduous, while getting little credit for the possibility that these firms remain central to enterprise AI adoption.

Accenture ( ACN ), Cognizant (CTSH), and Globant ( GLOB ), three leading IT services firms, trade at depressed valuations as fears that AI will erode demand for outsourced technology work obscure their normal earnings power. AI has lifted valuations across much of the technology sector, but IT services companies have been treated as structural losers. The industry has sold off on fears that AI will erode demand for third-party technology services through price deflation and disintermediation, driving a sharp compression in forward earnings multiples. We highlight three holdings at the center of this debate: Accenture, Cognizant, and Globant (Exhibit 1). Trading at 4.5x or less of our estimate of normal earnings, these businesses are priced as if in terminal decline. We believe they can adapt and become enablers of AI adoption, not victims of it.

The IT Services Industry At its simplest, IT services is outsourced technology work. Companies hire firms like Accenture, Cognizant, and Globant when projects sit outside their core business or exceed what internal IT teams can absorb. In practice, that often means technology consulting upfront, followed by building or integrating systems and managing them after launch. The work can include moving applications to the cloud, securing data, modernizing legacy systems, maintaining software, or operating a business process such as insurance claims processing or customer care. The industry accelerated in the late 1990s and early 2000s, when Y2K projects and large enterprise software rollouts pushed companies to outsource technology work at scale. Offshore delivery, especially in India, made large projects cheaper and easier to staff, while later waves of cloud migration, cybersecurity, digital commerce, data modernization, and, more recently, AI added new layers of demand. The industry now accounts for roughly 30% of global technology spending.

Does AI Shrink the Revenue Pool? The recent selloff in IT services stocks reflects a fear that AI will pressure an industry that has long billed for people's time. If a project that once required ten engineers can now be done by seven, the client will expect to pay less, leading to lower revenue per contract. That is already visible in renewals, where annual price step-downs that once ran 3% to 4% are now closer to 6% to 7%. There are two offsets. The first is a change in how contracts are priced. When a provider bills by the hour, every efficiency gain flows straight to the client as fewer billed hours. As work becomes AI-enabled, providers are instead signing fixed-price and outcome-based contracts, where the client pays for a result rather than hours. A provider tha...