Accenture Ups Revenue Outlook on Rising AI and Cloud Demand

Accenture has revised the lower end of its annual revenue forecast, driven by increasing demand for AI-powered tools in business operations.

The company expects strong performance from large-scale projects involving cloud migration, AI-driven digital transformation, and data security.

Shares of Accenture climbed over 2% in premarket trading on Thursday following the announcement.

Strong Performance and Future Growth

“Our second quarter results demonstrate that we continue to deliver on our strategy to lead reinvention for our clients and return to strong growth in FY25, with broad-based growth across markets, industries, and the types of work our clients seek from us,” said Julie Sweet, Accenture’s Chair and CEO.

Accenture has secured several large-scale projects and formed partnerships with banks, telecommunication companies, and sports organizations.

The company now anticipates annual revenue growth between 5% and 7%, up from the earlier range of 4% to 7%. Analysts had projected 5.7% growth, according to LSEG data.

Given that a significant portion of Accenture’s workforce is based in India, its performance is seen as an indicator of broader trends in the Indian IT sector, which employs over five million people.

Headcount and Attrition

In the second quarter of fiscal 2025, Accenture’s workforce increased by 2,000 employees, reaching a total of 801,000. This follows the addition of approximately 24,000 employees in the previous quarter.

The company follows a September-August financial year. Its attrition rate for the quarter rose by one percentage point to 13%.

Financial Highlights

Total bookings for the second quarter were reported at $20.9 billion, down 3.2% from the previous year. The operating margin for the quarter dropped by 10 basis points to 15.1%.

Goldman Sachs described Accenture’s results as mixed, noting that while revenue growth is improving, it reflects a slowing pace in the broader discretionary spending environment.

Quarterly Bookings Breakdown

Second-quarter bookings decreased by 3% to $20.9 billion compared to the previous quarter. Consulting new bookings amounted to $10.47 billion, while managed services bookings reached $10.44 billion.

GAAP diluted earnings per share (EPS) were reported at $3.59, a 16% increase from $3.10 in the same quarter last year and a 10% rise over adjusted EPS of $3.27 from the previous year.

The operating margin for the quarter stood at 16.7%, up 90 basis points year-over-year and 167 basis points sequentially.

Generative AI (Gen AI) Growth

Accenture highlighted growing client confidence in Gen AI, with 32 clients booking over $100 million each. New Gen AI-related bookings for the quarter totaled $1.4 billion.

Accenture and TCS are currently the only major IT firms reporting revenue from Gen AI. In Q1, Accenture secured $1.2 billion in Gen AI bookings, following $1 billion in Q4 and a total of $3 billion for FY24.

Companies are increasing investments in AI to enhance operational efficiency and reduce costs, benefiting firms like Accenture.

Competitive Landscape

Accenture’s US-based competitor, Cognizant Technology Solutions, also reported strong results.

On February 5, Cognizant raised its annual revenue growth forecast for 2025 to between 3.5% and 6% in constant currency terms, surpassing previous projections of 1.4% to 1.9%.

Revenue Performance by Region and Sector

Revenue from North America grew 11% year-over-year to $8.6 billion. Revenue from Europe, the Middle East, and Africa increased by 8% to $5.8 billion, while other markets saw a 1% rise to $2.3 billion.

Among business sectors, Accenture’s products division posted a 9% increase to $5.1 billion. The health and public service sector grew by 10% to $3.6 billion, while financial services increased by 11% to $3.1 billion.

Outlook for Q3 and Fiscal 2025

For the third quarter of fiscal 2025, Accenture expects revenue between $16.9 billion and $17.5 billion, representing 3% to 7% growth. Wall Street analysts anticipate revenues of $17.22 billion on average.

For fiscal 2025, Accenture projects earnings per share between $12.55 and $12.79, reflecting 10% to 12% growth on a reported basis and 5% to 7% growth on an adjusted basis. The company had previously guided for EPS between $12.43 and $12.79.

Accenture also narrowed its full-year revenue growth forecast to 5% to 7% in local currency, up from the earlier range of 4% to 7%.

Mixed Market Reaction

Despite the strong quarterly results, Accenture’s stock dropped 9.4% to $292.72 on Thursday, marking its largest percentage decline since June 2013. The stock was the weakest performer in the S&P 500, which gained 0.2% that day.

Edward Jones analyst Logan Purk maintained a “Buy” rating on Accenture, stating that while the company’s guidance is solid and AI bookings are increasing, concerns over federal cost-cutting measures could weigh on investor confidence.

Government Spending Risks

Accenture faces potential challenges from US government spending cuts. The Department of Government Efficiency (DOGE), established during Donald Trump’s administration, aims to reduce federal expenses.

Accenture reported that work with US federal clients accounted for approximately 17% of its North America revenue in fiscal 2024.

The company acknowledged that reduced government spending could impact sales and revenue growth.

“The new administration has a clear goal to run the federal government more efficiently. During this process, many new procurement actions have slowed, which is negatively impacting our sales and revenue,” management noted during the earnings call.