For chip manufacturers Nvidia It says it is partnering with companies to produce artificial intelligence (AI) products, which is probably something investors should take note of. Considering that the majority of servers built for AI are equipped with Nvidia GPUs, AI knows a lot about what’s going on in that part of the computing space.
During its third quarter conference call, Nvidia highlighted one company it’s working with to bring AI to more customers. Accenture (NYSE:ACN)the world’s largest technology consulting company.
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Nvidia CFO Colette Kress said on a conference call that Accenture has created a new division with 30,000 employees trained in Nvidia’s AI technology. This makes it one of the best-equipped companies to provide customers with the AI expertise they lack in-house. While the tech giants like it; alphabet or microsoft While they have large teams dedicated to this technology, companies in the banking, industrial, and oil sectors, for example, are unlikely to have such internal resources. As a result, you need to work with a consulting firm like Accenture.
Accenture CEO Julie Sweet said of generative AI:
Every industry has challenges and opportunities that GenAI can uniquely solve. Our deep understanding of both the industry and technology puts us in the best position to work with our clients to derive real value from GenAI.
This perfectly encapsulates Accenture’s AI investment thesis. Benefit from generative AI becoming mainstream In the next few years. Still, the company is a huge consulting firm with many specialties and expertise. It’s not a pure play of AI.
But does enhancing the rest of your business and AI equate to a successful investment?
In the fourth quarter of fiscal 2024, which ended Aug. 31, Accenture had $20.1 billion in new bookings, of which generated AI accounted for $1 billion. So while it’s clear that generative AI is boosting business, it only accounts for 5% of total bookings and is a relatively small part of a larger overall investment.
2024 wasn’t Accenture’s best year as customers were conservative with their spending. Sales rose just 3% in the fourth quarter and 1% for the year. The outlook for fiscal 2025 is slightly better, with management expecting revenue to increase between 3% and 6% in local currencies. (As a global company headquartered in Ireland, the company is exposed to exchange rate fluctuations.) Still, given that many AI companies are growing revenue at a much faster pace than Accenture Is it worth the investment?
From a future price-to-earnings ratio perspective, Accenture’s stock is very expensive.
The stock is trading at approximately 28 times the expected PER, and the valuation is meta platform and taiwan semiconductorboth of which are growing at a much faster rate than they are now. So why does Accenture make better stock picks?
One of the benefits investors get from Accenture is its generous equity return program. The company increased its dividend by 15% in the fourth quarter, and at the current stock price, the yield is about 1.6%. It also repurchased large amounts of stock worth $4.5 billion last year alone. Earnings per share are expected to increase by 5% to 8% in 2025 due to the reduction in the number of outstanding shares.
Still, even with its dividend and share buyback program, Accenture’s stock is a little too expensive for my tastes, especially given the other AI companies out there. Grow much faster and trade at similar or lower valuations. As a result, I will pass on this time.
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We currently have “double down” alerts on three great companies, and we may not see an opportunity like this again anytime soon.
Randi Zuckerberg is a former Facebook head of market development and spokesperson, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Keesen Drury He has worked at Alphabet, Meta Platforms, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in 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, long January 2026 $395 calls on Microsoft, short January 2025 $310 calls on Accenture, and January 2026 405 calls on Microsoft. This is a dollar short call. The Motley Fool has Disclosure policy.
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