Coforge shares surge over 3.5%, outperform other IT stocks; here is why

Shares of Coforge, the Noida-based information technology (IT) services company, rose as much as 3.65% to hit an intraday high of ₹1,150 on the National Stock Exchange (NSE) on Wednesday, March 25. On the BSE, Coforge shares advanced as much as 3.7% to hit an intraday high of ₹1,150.85.

Coforge was outperforming the IT index as it was up 0.8% and the stock was top gainer in the NIFTY IT inde.

Coforge shares came under buying interest after CLSA, the Asia-based capital markets and investment group, in a note said that it recently hosted Coforge's CEO Sudhir Singh and he mentioned that AI is not going to be deflationary for service providers who have both domain and technical knowledge to build solutions around AI tools.

In an interaction with CLSA, Singh noted that there will be a significant managed services opportunity around managing frontier models and orchestrating AI agents loke hybrid and SaaS managed service opportunities during the last decade.

CLSA highlighted that the 'proof of pudding' in case of Coforge would be visible in strong growth in nest twelve month (NTM) executable orderbook, revenue per employee and EBIT margins.

CLSA noted that on a mid-teens US dollar revenue growth Coforge is trading at a 20 times one-year forward price to equity (PE) multiple.

In a separate development, Coforge said that ServiceNow, the AI platform for business transformation, and Coforge on Tuesday announced the successful global rollout of the ServiceNow AI-powered HR Service Delivery (HRSD) platform at Coforge.

"By adopting ServiceNow internally as a customer, Coforge has modernized and enhanced the employee experience for its 35,000+ global workforce, marking a significant milestone in the company’s enterprise-wide AI and digital transformation journey," Coforge said in a press release.

Meanwhile, in a report last week CLSA noted that in its discussions with other IT giants like Wipro, Tata Consultancy Services (TCS), Infosys and HCL Technologies it found no evidence of increased deflation in renewal contracts due to the latest AI tools from Anthropic and OpenAI since their launch.

"Vertical-wise demand commentary remains intact with BFSI continuing to see tailwinds for all four companies, tech is doing well for HCL and TCS and the retail, auto and healthcare verticals remain soft. A few companies flagged a slight delay in decision making by clients due to the launch of the latest AI tools to explore their true potential and due to the ensuing Middle East (ME) crises," CLSA said.

CLSA noted that TCS sees AI as a net tailwind for the industry with focus on building applications through AI tools becoming an opportunity for TCS. TCS is in advanced discussions with Anthropic as well around building a partnership like the one they did with OpenAI.

While, HCL Technologies said that it is still seeing 2%-3% gross deflation per annum due to AI which could be more than offset by volume opportunity in five key areas: custom silicon chip designing, physical AI, robotics, IP revenue and marketing as a service.