Accenture secures $1.1 billion GenAI projects in Sep-Feb
Summary
- Accenture's second quarter order bookings hit $21.6 billion, with GenAI projects making up approximately 2.8% of the total during the period, highlighting GenAI's growing strategic value
IT services provider Accenture Plc secured generative artificial intelligence (GenAI) projects totalling $600 million in the three months through February, following up on $450 million worth of such deals during the first quarter.
The company's management claimed that GenAI is the fastest emerging technology to surpass $1 billion in sales.
Accenture, which follows a September-August financial calendar, has won $1.1 billion in GenAI projects during the first half of the current fiscal year, after it first quantified the deal value in the new technology in June last year when it announced securing $100 million in pure-play GenAI projects during February-May.
The company reported $21.6 billion in order bookings for the second quarter, with GenAI deals contributing approximately 2.8% to the total during the December-February period. This marks an increase from the 0.6% share of GenAI projects in the company's $17.2 billion deal wins from the previous March-May.
Julie Sweet, Accenture's chair and CEO, in a post-earnings discussion with analysts, said that achieving $1 billion in sales within six months is unprecedented for the company in terms of emerging technology adoption.
“And what it tells you is that, clients understand the importance of AI that they're going to have to reinvent every part of the enterprise and that's exactly where everything we've done for the last decades at Accenture."
The surge in GenAI projects underscores Accenture's advantage from the global attention on AI following the launch of ChatGPT in November 2022, which has positioned this technology as a significant disruptor in various businesses.
“[W]e are encouraged by its AI sales, which are over $1B YTD (year to date), and we continue to expect ACN (Accenture) to benefit as enterprises scale their AI-related spend," Arvind Ramnani and John Nutt, analysts at investment firm Piper Sandler & Co. wrote in a note dated 21 March.
Piper Sandler analysts had said in December last year that GenAI business could become a $4 billion business for Accenture in the current financial year.
GenAI, which includes technology driving innovations like ChatGPT, spans a broad array of capabilities, including creating new content forms like text, audio, and video.
Accenture's early success in GenAI contrasts with homegrown technology services majors, such as Tata Consultancy Services Ltd, Infosys Ltd, and HCL Technologies Ltd, which are still navigating their AI strategies and have not disclosed their earnings from this technology, considered by many as the biggest risk to the outsourcing industry.
“Generative AI bookings were about $600 million in the quarter and totalled about $1.1 billion in 1HFY24. This compares to about $300 million in total bookings in FY23," Keith Bachman, an analyst with BMO Capital Markets, wrote in a note dated 21 March.
“Hence, generative AI bookings continue to grow sequentially though remain small at about 3% of total bookings in the quarter. We continue to believe that Accenture has a leading position in IT services to help with generative AI strategies given the breadth and scale of its operations and its capacity to invest in people, technology, and M&A."
Save for the bullish outlook on GenAI, Accenture's overall revenue growth has disappointed analysts for the second consecutive quarter, with revenues totalling $15.80 billion in the quarter ended in February, a slight decrease from $15.81 billion in the same period a year earlier. This downturn is attributed mainly to reduced engagements from major banks and cautious spending on consulting work by Fortune 1000 companies.
The company reported a 6% year-on-year fall in business from banks, and a 3% decline in consulting services, which make up 51% of Accenture’s total revenue. However, operating margin improved slightly to 13% in the quarter under review, up from 12.7% a year ago.
Amid ongoing macroeconomic uncertainties, Accenture has revised its full-year revenue growth forecast to between 1% and 3%, down from the previously projected 2% to 5% growth for the fiscal year ending in August 2024. Considering acquisitions contribute at least 2.5% to the company's annual growth, the revised outlook suggests that Accenture, having concluded the previous year with $64.1 billion in revenue, might witness a decline in organic growth this year.
“We thought Accenture’s quarter was weak highlighted by the lower revenue growth range for FY24," wrote Bachman. “While not totally surprising, we think the size of the cut was meaningful, and the organic guidance was lowered by even more given higher M&A contribution."