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NO QUICK FIX FOR IT SERVICES' AI HEADACHE

The IT services sector has had a turbulent run, caught in this year's global software selloff as AI-driven concerns cast a long shadow over otherwise steady earnings expectations.

A recent tentative recovery across many names in the space has rapidly fizzled out, and Berenberg weighs in on what lies ahead in a new note on Wednesday.

The German investment bank believes frontier AI providers lack the scale to replace IT vendors outright, but it is nevertheless far from upbeat.

"Our industry conversations point to limited visibility on the long-term value capture across the AI stack," Berenberg analysts Meha Pau and Nay Soe write.

"Combined with a muted demand backdrop and potential headwinds from upcoming AI provider IPOs, we see limited scope for a near-term sector re-rating."

Their downgrade of Cognizant CTSH.O and cut to Accenture's ACN.N price target simply reflect peer multiple compression, with no changes to earnings forecasts.

More broadly, Berenberg says underlying demand is nuanced.

(Danilo Masoni)

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