When chipmaker Nvidia says it is partnering with an organization to provide a man-made intelligence (AI) product, it is most likely one thing that traders ought to take note of. Contemplating that almost all of servers constructed for AI have Nvidia GPUs in them, it is aware of a lot about what’s taking place in that a part of the computing area.
Throughout Nvidia’s Q3 convention name, it highlighted one firm that it is working with to convey AI to extra clients: Accenture (ACN 1.28%), the most important tech consulting agency in the world.
Accenture’s military of AI consultants
Nvidia CFO Colette Kress stated throughout its convention name that Accenture created a brand new unit with 30,000 workers skilled on Nvidia’s AI expertise. This makes it probably the most well-equipped firms to supply purchasers with the AI experience they might lack in-house. Whereas tech giants like Alphabet or Microsoft have large groups dedicated to this expertise, firms in the banking, industrial, or oil sectors, for instance, are unlikely to have these types of inside assets. Because of this, they should work with consulting companies like Accenture.
Accenture CEO Julie Candy had this to say about generative AI:
In each trade, there’s a problem or alternative that GenAI can now uniquely remedy. Our deep understanding of each the trade and the expertise positions us to be the perfect at creating actual worth from GenAI with our purchasers.
That completely sums up the AI-related funding thesis for Accenture, as it’s set to benefit from generative AI going mainstream in the approaching years. Nonetheless, it’s a large consulting agency with many areas of specialization and experience. It is not an AI pure-play.
However does the remainder of the enterprise plus an AI increase equal a successful funding?
An expensive inventory based mostly on the outlook
In its fiscal 2024 fourth quarter, which ended Aug. 31, Accenture noticed new bookings of $20.1 billion, of which generative AI made up $1 billion. So whereas generative AI has clearly given the enterprise a lift, it solely accounted for five% of whole bookings, making it a comparatively minor a part of the bigger funding image.
Fiscal 2024 wasn’t the best yr for Accenture, as purchasers have been conservative with their spending. Income rose simply 3% in This fall and only one% for the yr. The outlook for fiscal 2025 is barely higher — administration expects income to develop by 3% to six% in native currencies. (As a worldwide enterprise headquartered in Eire, it is uncovered to adjustments in forex trade charges.) Nonetheless, contemplating that many AI firms are boosting their income at a lot sooner charges than that, is Accenture value investing in?
From a forward price-to-earnings standpoint, Accenture’s inventory is sort of costly.
ACN PE Ratio (Forward) knowledge by YCharts.
Shares are buying and selling at round 28 occasions ahead earnings, an identical valuation to Meta Platforms and Taiwan Semiconductor, each of that are rising a lot sooner than it’s. So why would Accenture make a greater inventory choose?
One benefit traders get from Accenture is its beneficiant shareholder capital return program. It elevated its dividend by 15% in This fall, and on the present share worth, it has a yield of about 1.6%. It additionally repurchases numerous inventory — $4.5 billion value final yr alone. Decreasing the excellent share rely boosts its earnings per share, that are anticipated to extend between 5% and eight% in fiscal 2025.
Nonetheless, even with the dividend and inventory buyback program, Accenture’s inventory is a bit too costly for my style, particularly when there are different AI firms which are growing much faster and trade at similar or cheaper valuations. Because of this, I will take a go on it for now.
Randi Zuckerberg, a former director of market growth and spokeswoman for Fb and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of administrators. Suzanne Frey, an government at Alphabet, is a member of The Motley Idiot’s board of administrators. Keithen Drury has positions in Alphabet, Meta Platforms, and Taiwan Semiconductor Manufacturing. The Motley Idiot has positions in and recommends Accenture Plc, Alphabet, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Idiot recommends the next choices: lengthy January 2025 $290 calls on Accenture Plc, lengthy January 2026 $395 calls on Microsoft, brief January 2025 $310 calls on Accenture Plc, and brief January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.