Accenture ushers in holiday season with $1.2 billion in Gen AI orders

Accenture, which follows a September-August financial year, was the first software services company to state Gen AI deal value in June last year when it won $100 million in pure-play Gen AI projects in the quarter. India’s information technology (IT) services providers are yet to spell out revenue from pure-play Gen AI projects.

However, in the company’s post-earnings call with analysts on Thursday, chief executive Julie Sweet noted that the overall spending environment remains the same. Hence, companies keen on Gen AI are prioritizing their spending on the segment, rather than increasing spending overall.

“Right now, it still generally feels more like a prioritization within current budgets; and so, we’ll see what happens in January and February,” she said. Companies will have to focus on spending on data foundation first and then on AI itself, she said.

$1-bn of projects in Aug qtr

Accenture reported $1 billion in Gen AI projects in the three months ending August 2024, taking its total order bookings to $3 billion in a year.

Gen AI bookings made up 6.4% of the company’s overall order bookings of $18.7 billion for the quarter. To put it in perspective, Accenture’s total order bookings from Gen AI are roughly the same as the FY24 revenue of LTIMindtree Ltd, India’s sixth largest software services company.

Gen AI entered boardroom discussions after the launch of ChatGPT in November 2022. The technology can make content in written, audio and visual forms just by means of a prompt.

While Accenture is optimistic about the growth in Gen AI, at least one analyst said it may add pricing pressure.

“We think the IT services industry is experiencing pricing pressure in many lines of business, consistent with the past few quarters. For CY25, we think BPO and application development and maintenance will continue to experience pricing pressure as well as incremental deflationary forces driven by generative AI,” Keith Bachman, an analyst with BMO Capital Markets, wrote in a note dated 5 December. “In particular, we believe that renewals will be challenging since customers will seek, and likely get, lower renewal prices than historical norms as the power and capabilities of generative AI increase,” said Bachman.

Stance on macros stay

Even as Accenture’s Gen AI bookings reflect optimism, the company reiterated its stance on the macroeconomic environment.

“We have a strong start in Q1, we have strong guidance in Q2 which was really driven, it was broad-based and driven by our organic growth. At the same time, you heard Julie say, the macro remains the same. There’s no change in the overall environment,” said Angie Park, chief financial officer of Accenture.

Accenture’s revenue in the first quarter totalled $17.69 billion, up 7.8% sequentially. The company revised its full-year revenue growth expectations to 4-7% from 3-6% estimated in the preceding quarter.

The company’s increase in growth forecast was coupled with an increase in headcount, which the company’s management hinted was reflective of the business momentum.

Accenture ended November 2024 with 799,000 employees, which is an increase of 24,000 from the preceding quarter. The bulk of the hiring was in India.

“We did add about 24,000 people in the first quarter, which is really reflective at the momentum that we see in our business,” said Park, who took over as CFO on 1 December. “We’ll continue to hire for the demand that we see and the skills that we need. And I would give you a little bit more context that the hiring that we saw this quarter similar to last was that it was concentrated in India,” she added.

Hiring based on skill

Chief executive Sweet attributed the hiring in India to skill-based capabilities.

A big reason why companies turn to India is the availability of skills, she said. “Ten years ago, it was about labour arbitrage. Today, it’s about the ability to get these skills at scale,” she said.

At least one analyst said Accenture’s results highlighted a pick-up in tech spending.

“The Accenture results reflect the recent pick-up in tech spend, especially in GenAI strategy and implementation projects. When you consider Microsoft Copilot has achieved $1 billion of sales in its first year, it makes complete sense that there will be an accelerated spend on services in this area and Accenture is leading the charge,” said Phil Fersht, chief executive of US-based HFS Research, an outsourcing-research firm.

Even as yearly growth forecast and headcount addition appear sanguine, the company expects its revenue to be negatively impacted by foreign exchange fluctuations, as against its previous assumption of a positive impact. Accenture expects revenue of $16.2-$16.8 billion for the quarter ended February 2025.