Cognizant CFO: AI Pressures IT Spending, but BFSI Growth Stays Strong

Cognizant Technology Solutions (NASDAQ:CTSH) CFO Jatin Dalal said the IT services industry’s prolonged period of slow growth reflects both secular pressures from artificial intelligence and a broader lack of discretionary spending across several end markets.

Speaking at a Citi fireside chat hosted by IT services analyst Bryan Keane, Dalal said banking, financial services and insurance remained a notable exception. Cognizant posted double-digit growth in BFSI during the second quarter, he said, despite AI-related productivity gains and other pressures affecting the industry.

“It is some amount of secular pressure, but it is also largely the lack of discretionary spend in the rest of the sector,” Dalal said.

Demand Varies by Industry

Dalal described demand conditions as broadly unchanged from the company’s recent earnings-call commentary, though performance differs significantly by vertical. In communications, media and technology, he said technology customers continue to invest in their futures and have maintained a strong discretionary-spending environment.

However, aggregate CMT growth has been held back by communications-sector trends and the effect of a particular customer that weighed on Cognizant’s first-half results. Dalal said that customer’s situation has stabilized and should no longer create an additional negative headwind, potentially improving the outlook for the segment in coming quarters.

He said Cognizant does not currently see similar customer spending decisions on the horizon. Elsewhere, products and resources customers are working through supply-chain effects tied to geopolitical conditions, while healthcare is navigating policy-related challenges and opportunities, according to Dalal.

AI Reshaping Delivery Models and Competition

Dalal said AI is changing the basis of competition for large IT services contracts. Rather than simply focusing on whether an incumbent provider is displaced by a new competitor, clients are increasingly evaluating whether providers understand the use case for AI and can demonstrate they will remain technologically relevant over the next several years.

Incumbent providers still retain an advantage from their knowledge of a client’s existing IT environment, he said. That context is especially valuable in AI deployments, where Dalal characterized the outcome as a combination of AI and customer-specific context.

On workforce trends, Dalal said employment among major IT services firms increased from 2023 to 2024 and again from 2024 to 2025, but has become “largely flattish” from 2025 to 2026. He expects staffing levels to remain within a relatively narrow range for the next 18 to 24 months rather than show substantial additions or reductions.

Over time, he said, employee costs should decline as a portion of cost of sales and be replaced in part by virtual effort and inference costs, while companies seek to preserve gross margins.

Dalal also said new spending on large language model tokens and graphics processing unit usage currently represents an outsized portion of technology budgets, much as software licensing and cloud spending did in earlier cycles. He expects services spending to regain a more balanced share of customer budgets as companies focus on realizing value from those technology investments.

Large Deals, AI Offerings and Revenue Mix

Dalal said Cognizant reached its targeted “winner’s circle” competitive position in 2025, earlier than its previous 2027 aspiration, and maintained that standing through the first six months of 2026. He attributed the performance to the company’s combination of domain knowledge and technology capabilities, its ability to win and execute large deals, and relatively high investment in AI.

He said bookings were up 5% over the trailing 12 months, supported by large-deal activity. New work volumes are growing at a double-digit pace, he said, but that growth is partly offset by productivity-led shrinkage in existing work. Cognizant has said that 40% of its software-engineering work is now AI-assisted, reducing human effort required in that area.

Cognizant expects its traditional “vector one” services to remain the dominant source of revenue in 2026. Dalal said vector two and vector three opportunities are becoming more visible in bookings, including contracts larger than proof-of-concept projects or $2 million to $3 million engagements, but are generally not yet comparable to $300 million contracts. He expects their revenue contribution to become more meaningful in 2027 and 2028.

The company is also incorporating inference into pricing models. Dalal said fixed-price customers increasingly focus on total cost of ownership rather than individual labor rate cards. For time-and-materials work, Cognizant is using an A0-to-A4 framework that distinguishes between traditional human-led delivery and varying degrees of AI-led or agentic work.

Margins, Capital Allocation and India Listing Discussions

Dalal said Cognizant expects gross margin to improve gradually. The company has guided for a 10-basis-point increase in operating margin at the midpoint of its 2026 guidance range from Project Leap, a savings program whose benefits are being partly reinvested in employee training, AI delivery infrastructure and internal tools.

For capital allocation, Dalal said Cognizant plans to maintain its 50/25/25 framework, allocating 50% to mergers and acquisitions, 25% to dividends and 25% to buybacks. The company added and executed an additional $1 billion buyback in May, which he described as an opportunistic acceleration of future repurchases.

On a potential Indian listing, Dalal said Cognizant expects regulators to offer draft regulations by the end of the year. The board would then assess whether the resulting framework serves the interests of existing shareholders and other stakeholders before deciding whether to proceed.

About Cognizant Technology Solutions (NASDAQ:CTSH)

Cognizant Technology Solutions Corporation is a professional services and information technology company that helps organizations modernize their technology infrastructure, operations and customer experiences. The company provides consulting, systems integration, application development and maintenance, and business process services to clients across industries.

Its offerings include cloud enablement, software engineering, data and analytics, artificial intelligence, cybersecurity, automation and digital workplace solutions.