When the chip maker Nvidia says it is partnering with a company to produce an artificial intelligence (AI) product, that’s probably something investors should pay attention to. Since the majority of servers built for AI are powered by Nvidia GPUs, he knows a lot about what’s going on in that part of the computing space.
During Nvidia’s third quarter conference call, the company highlighted a company it is working with to bring AI to more customers: Accenture (NYSE: ACN), the world’s largest technology consulting firm.
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Nvidia Chief Financial Officer Colette Kress said during her conference call that Accenture has created a new unit with 30,000 employees trained in Nvidia’s AI technology. This makes it one of the companies best equipped to provide clients with the AI expertise they lack in-house. While tech giants like Alphabet Or Microsoft If companies in the banking, industrial or oil sectors for example have huge teams dedicated to this technology, it is unlikely that they have such internal resources. As a result, they have to work with consulting firms like Accenture.
Julie Sweet, CEO of Accenture, had this to say about generative AI:
In every industry, there is a challenge or opportunity that GenAI can now uniquely solve. Our deep understanding of the industry and technology positions us best at creating real value from GenAI with our customers.
This perfectly sums up Accenture’s AI-related investment thesis, as it should benefit from generative AI which is becoming widespread in the years to come. However, it is a huge consultancy with many areas of specialization and expertise. This is not a pure AI game.
But is the rest of the business, plus a boost in AI, a winning investment?
During its fiscal 2024 fourth quarter, which ended Aug. 31, Accenture recorded $20.1 billion in new bookings, including $1 billion for generative AI. So while generative AI has clearly given the company a boost, it only represents 5% of total bookings, making it a relatively minor part of the larger investment picture.
FY2024 was not the best year for Accenture as clients were cautious with their spending. Revenue grew just 3% in the fourth quarter and just 1% for the year. The outlook for fiscal 2025 is slightly better: management expects revenue growth of 3-6% in local currencies. (As a global company headquartered in Ireland, it is exposed to changes in exchange rates.) Still, given that many AI companies are growing revenue at much faster rates than that, Accenture is worth is it worth investing in?
From a forward price-to-earnings perspective, Accenture stock is quite expensive.
Shares trade at around 28 times forward earnings, a similar valuation to Metaplatforms And Taiwan Semiconductorboth of which are growing much faster than they actually are. So why would Accenture do better stock picking?
One of the benefits that investors enjoy from Accenture is its generous shareholder capital return program. It increased its dividend by 15% in the fourth quarter, and at the current stock price its yield is about 1.6%. It also buys back a lot of stock – worth $4.5 billion last year alone. Reducing the number of shares outstanding increases its earnings per share, which is expected to increase between 5% and 8% in fiscal 2025.
Still, even with the dividend and stock repurchase program, Accenture stock is a little too expensive for my liking, especially when there are other AI companies that are grow much faster and trade at similar or cheaper valuations. As a result, I’m going to do without it for now.
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Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of the board of directors of The Motley Fool. Keithen Drury holds positions in Alphabet, Meta Platforms and Taiwan Semiconductor Manufacturing. The Motley Fool holds positions and recommends Accenture Plc, Alphabet, Meta Platforms, Microsoft, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2025 $290 calls on Accenture Plc, long January 2026 $395 calls on Microsoft, short January 2025 $310 calls on Accenture Plc, and short January $405 calls 2026 on Microsoft. The Mad Motley has a disclosure policy.
