Goldman sees earnings upside for these 2 IT Services stocks

Investing.com -- In a note to clients on Friday, Goldman Sachs flagged modest earnings upside for IBM (NYSE: IBM) and Cognizant (NASDAQ: CTSH) heading into first-quarter results, while warning that Globant faces downside risk from its exposure to pressured verticals and the Middle East conflict.

Analyst James Schneider stated in a note that the setup for the IT services sector appears "increasingly undemanding" following a material de-rating driven by persistent AI-disruption concerns, creating the conditions for selective outperformance on solid prints.

On IBM, which Goldman rates buy, Schneider said software momentum is likely intact despite an anticipated slowdown in mainframe growth.

"We view IBM as relatively resilient to broader AI-driven concerns in software, supported by continued strength in its core portfolio," he wrote.

For Cognizant, rated neutral, Goldman said results should be supported by stable execution, a strong backlog of large deals and positive commentary around AI adoption and productivity gains.

"Given low expectations, we see potential for near-term stock outperformance on a solid print," Schneider wrote, though he noted the firm remains more cautious longer-term given persistent gross margin headwinds.

Globant, also rated neutral, is seen facing the most pressure, with Goldman flagging outsized exposure to Media and Entertainment as well as significant business in the Middle East.

While positive AI demand commentary around the company's "AI Pods" offering is expected, Schneider said he does not expect it to offset near-term growth headwinds from softer discretionary spending.

Goldman said investor focus this quarter will center on demand commentary given rising macro uncertainty, with AI adoption updates likely to be a key area of attention.

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