The Zacks Computer - Services industry participants like CACI International CACI, CGI Group GIB and Innodata INOD are riding on the ongoing digital transformation, which is increasing the demand for cloud-enabled software solutions. The rising adoption of digital transformative techniques in healthcare and financial services has been a silver lining for industry participants. The growing need for consulting, research and cyber-security solutions, stringent regulations, digital healthcare and the growing adoption of business automation solutions is likely to continue driving the industry’s prospects. However, industry participants continue to face broader macroeconomic challenges that have resulted in an elongated sales cycle, lower conversion rates and customer delays in making purchase decisions.

Industry Description

The Zacks Computer - Services industry primarily comprises companies that offer cloud and software-based solutions. Their offerings include consulting and research solutions, security solutions, business support solutions and systems engineering, as well as software application development solutions. The industry participants cater to varied end markets and customers, including intelligence, defense, U.S. government agencies, communications, banking, financial services, insurance, healthcare, and media and entertainment. Consultancy companies in the industry are helping clients in their ongoing digital transformation. They provide end-to-end services, including application development, integration and maintenance, technology infrastructure management and business process services.

3 Computer-Services Industry Trends to Watch

Remote & Hybrid Work Trends Boost Prospects: The industry’s growth is expected to accelerate in the days ahead based on an increasing number of remote and hybrid workers. In this era of digital transformation, enterprises are actively seeking a common ground between on-premise and cloud infrastructures, enabling them to provide flexible and easily adaptable hybrid solutions. The growing remote-working trend has led to increased demand for cloud and cost-efficient business support solutions, as well as other digital monetization solutions, which bode well for the industry.

Growing Cyber Attacks Are Creating a Tailwind: The increasing number of cyber-attacks and related security risks are expected to keep the industry’s momentum alive. Government agencies are ideal targets for cyber-attacks, as they are entrusted with sensitive information. Therefore, the growing need for cyber security solutions and services in critical areas like defense, intelligence and civilian agencies of the U.S. government bodes well for industry players.

Regulatory Compliance Drives Demand: Companies in this industry are likely to benefit from increasingly complex network systems and sensitive information environments in which governments and businesses operate. Industry participants are keeping pace with global regulatory and business practice requirements, thereby helping customers incorporate the best practices while complying with governmental and industry norms.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Computer – Services industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #86, which places it in the top 35% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

Given the bullish industry outlook, there are a number of stocks worth watching currently. But before we present those stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation.

Industry Lags Sector and S&P 500

The Zacks Computer – Services industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 Index over the past year.

The industry has risen 8.6% over this period compared with the S&P 500’s appreciation of 22.5% and the broader sector’s return of 23.5%.

One-Year Price Performance

Industry's Current Valuation

On the basis of forward 12-month P/E, which is a commonly used multiple for valuing computer stocks, we see that the industry is currently trading at 18.12X compared with the S&P 500’s 22X and the sector’s forward 12-month P/E of 25.68X.

Over the last five years, the industry has traded as high as 19.59X and as low as 16.35X, with a median of 18.01X, as the charts below show.

Forward 12-Month Price-to-Earnings (P/E) Ratio

3 Computer-Services Stocks to Watch Right Now

Innodata: This Zacks Rank #1 (Strong Buy) company is capitalizing on its expertise in instruction-tuning data and Reinforcement Learning from Human Feedback (RLHF). You can see the complete list of today’s Zacks #1 Rank stocks here.  

With increasing concerns over intellectual property issues and the risks of “model collapse” from web-scraped data, INOD’s focus on creating proprietary, high-quality, supervised fine-tuning data is providing it a distinct competitive edge.

Innodata’s cutting-edge Agility platform, designed for specialized workflows involving generative artificial intelligence (Gen AI), has been experiencing growing demand in the market. The company is advancing its portfolio with new AI platforms to address emerging needs, such as large language models safety and evaluation. Prototypes of its latest platforms have been well-received by multiple Big Tech clients and enterprises, reinforcing Innodata’s innovation-driven approach.

The Zacks Consensus Estimate for INOD’s 2025 earnings has been steady at 82 cents per share over the past 30 days. The stock has returned 261.8% in the trailing 12 months period.

Price and Consensus: INOD

CACI International: This Reston, VA-based IT applications and infrastructure provider is benefiting from new business wins and organic expansions. This Zacks Rank #3 (Hold) company’s disciplined business development actions, consistent operational excellence and high customer satisfaction help it win new deals at regular intervals.

CACI’s sustained focus on its strategy to grow in larger markets and leverage mergers and acquisitions to further increase its market share and create long-term value for its shareholders is praiseworthy.

The Zacks Consensus Estimate for CACI’s fiscal 2025 earnings has increased 2.3% to $24.31 per share over the past 30 days. The stock has returned 10.6% in the trailing 12-month period.

Price and Consensus: CACI

CGI Group: This Zacks Rank #3 company is benefiting from strong performance in the government and financial services end markets. 

CGI Group’s strong focus on dirving monetization and operational efficiency is helping the company win clients in the government end market. An expanding partner base that includes the likes of Snowflake and Databricks.

The merger with Daugherty, a professional services firm specializing in AI, IT consulting and business advisory services, will enhance CGI Group’s footprint in metros such as St. Louis, Atlanta, Minneapolis and Chicago.

The Zacks Consensus Estimate for GIB’s fiscal 2025 earnings has declined 3% to $5.79 per share over the past 30 days. The stock has appreciated 5.9% in the trailing 12-month period.

Price and Consensus: GIB


 

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