Goldman initiates coverage on IT Services sector, sees compelling risk/reward in IBM, GLOB

Analysts at Goldman Sachs assessed the Americas IT Services sector in a note Monday, initiating coverage on eight companies and highlighting “compelling risk/reward” in IBM (NYSE:) and Globant (GLOB). Their note acknowledges both cyclical headwinds and long-term potential.

Analysts see the sector experiencing a cyclical downturn due to macro pressures and a shift in spending towards AI-focused capital expenditures. However, they believe concerns about Generative AI as a threat to IT Services are overblown. While some technical hurdles exist, AI is ultimately seen as beneficial, particularly for Business Process Services.

The crux of the note lies in the differentiation between cyclical and secular risks. Analysts argue the market is conflating these factors, creating an opportunity for select companies.

The “Goldman Sachs IT Services Investing Framework” evaluates companies’ growth potential, returns, capital allocation, and stock positioning. Buy ratings target companies where market appreciation for sustainable growth or potential cyclical recovery is lacking.

Based on this framework, Goldman Sachs issues Buy ratings for IBM with a $200 price target (PT) and Globant with a $200 PT. Conversely, Thoughtworks and TaskUs receive Sell ratings with PTs of $2.50 and $12 respectively, reflecting a less favorable risk/reward profile. The remaining companies – Accenture, Cognizant, EPAM Systems, and Softchoice – receive Neutral ratings.