Cognizant Lowers 2026 Revenue Growth Forecast Amid Economic Challenges

Cognizant, the Nasdaq-listed IT services company, has once again adjusted its revenue growth guidance downward for 2026, reflecting a deteriorating macroeconomic environment that has complicated the outlook for the technology sector. This marks the second time this year the company has cut its forecast, signaling ongoing pressures in the broader market that have restrained expansion plans across the industry.

Initially, at the start of the year, Cognizant projected a growth range of 4 to 6.5 percent on a constant currency basis. In July, that estimate was narrowed to between 4 and 5.5 percent. Most recently, the company further lowered its guidance to a range of 4 to 4.4 percent. This trend points to cautious optimism tempered by significant external challenges impacting client spending and deal activity.

Despite these adjustments, Cognizant reported solid financial results for the third quarter ending September 30. Net profit surged to $627 million, more than doubling from $274 million a year earlier. This sharp increase was largely driven by a reduced provision for income taxes. Revenue also showed steady growth, rising 4.6 percent to reach $5.7 billion. On a constant currency basis, revenue growth was slightly higher at 4.8 percent.

CEO Ravi Kumar addressed the company’s outlook during a virtual media briefing. He highlighted that the economic environment has worsened over the past three months, with rising oil prices, inflationary pressures, and higher interest rates all contributing to uncertainty. Kumar noted the growing influence of artificial intelligence (AI) as a positive factor, describing it as a "tailwind" that is evolving from just improving productivity to enabling the creation of entirely new solutions. However, he cautioned that realizing the full potential of AI depends on discretionary spending by clients, which has yet to pick up as anticipated.

Cognizant’s decision to lower its growth forecast aligns with similar moves by other major IT services providers. For example, Infosys recently trimmed its guidance, citing weak macroeconomic conditions, heightened market uncertainties, and softer-than-expected discretionary investments in AI initiatives.

In comparison to its Indian peers, Cognizant fared relatively well in the quarter, outperforming rivals in both dollar and constant currency revenue growth. The company’s growth was second only to Tech Mahindra, which posted 6.8 percent growth in dollar terms and 7.2 percent on a constant currency basis, though from a smaller revenue base.

Nevertheless, Cognizant faces challenges with organic growth and contract wins. The total contract value (TCV) of new deals declined for the second consecutive quarter, raising concerns about future momentum. Although bookings on a trailing 12-month basis increased 4 percent year-over-year to $28.7 billion, third-quarter bookings fell by 7 percent compared to the same period last year. The quarter’s bookings included just three large deals, defined as contracts valued at $100 million or more.

Kumar explained that over the past three years, many large deals have been renewals made ahead of schedule, as customers sought to leverage competitive pricing. This dynamic suggests a slowdown in big new contracts across the industry, with recent deals typically smaller in size, placing pressure on top-line growth.

The financial services sector was the primary growth driver in the third quarter, expanding 11.4 percent and marking three straight quarters of double-digit gains, reflecting continued demand for IT services in this area.

On the workforce front, Cognizant reported an attrition rate of 12.6 percent. The company increased its headcount by 3,200 employees, bringing the total to 359,900. Kumar also addressed concerns related to recent US PERM (Program Electronic Review Management) rulings, stating the company does not expect these to affect operations. Cognizant has been proactive in talent localization, having hired 20,000 engineering graduates recently, including 1,000 in the United States.

This latest update from Cognizant illustrates the complexities facing global IT service providers as they navigate a mix of economic headwinds and technological shifts. While AI offers promising opportunities, broader economic factors continue to shape client spending patterns and contract dynamics, influencing the pace of growth in the sector.