When chip maker Nvidia says it’s partnering with a company to produce an artificial intelligence (AI) product, this is likely something investors should pay attention to. Considering that the majority of servers built for AI contain Nvidia GPUs, it knows a lot about what’s happening in that part of the computing space.
Nvidia’s Q3 conference highlighted one company it’s working with to bring AI to more customers: Accenture (NYSE:ACN)the largest technology consultancy in the world.
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Nvidia CFO Colette Kress said during her conference call that Accenture has created a new unit 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 may not have internally. While tech giants like it Alphabet or Microsoft Because they have huge teams dedicated to this technology, companies in the banking, industrial or oil sectors are unlikely to have these types of internal resources. As a result, they have to work with consulting firms like Accenture.
Accenture CEO Julie Sweet said this about generative AI:
In every industry, there is a challenge or opportunity that GenAI can now uniquely solve. Our deep understanding of both the industry and technology positions us as the best at creating real value from GenAI for our customers.
That perfectly sums up the AI-related investment thesis for Accenture, as the company will benefit in the coming years as generative AI becomes mainstream. Yet it is a large consultancy firm with many specializations and expertise. It’s not a pure AI game.
But does the rest of the company plus an AI boost equal a winning investment?
In the fourth quarter of 2024 ended August 31, Accenture saw new bookings worth $20.1 billion, of which generative AI represented $1 billion. So while generative AI has clearly boosted the business, it only accounted for 5% of total bookings, making it a relatively small part of the bigger investment picture.
FY 2024 wasn’t the best year for Accenture as clients were conservative with their spending. Sales rose only 3% in the fourth quarter and only 1% for the full year. The outlook for fiscal 2025 is slightly better: management expects local currency sales to grow 3% to 6%. (As a global company headquartered in Ireland, it is exposed to changes in exchange rates.) But given that many AI companies are growing revenues much faster, is Accenture worth investing in?
From a future price-to-earnings perspective, Accenture shares are quite expensive.
ACN PE ratio (forward) data according to YCharts.
The shares trade at about 28 times forward earnings, a similar valuation to expected earnings Metaplatforms And Taiwanese semiconductorboth of which are growing much faster than they are. So why would Accenture make a better stock pick?
One benefit investors get from Accenture is its generous capital return program for shareholders. It increased its dividend by 15% in the fourth quarter and at the current share price it has a yield of about 1.6%. The company is also buying back a lot of stock – worth $4.5 billion last year alone. Reducing the number of shares outstanding increases earnings per share, which is expected to rise 5% to 8% in fiscal 2025.
Still, even with the dividend and share buyback program, Accenture’s stock is a bit overpriced for my taste, especially when there are other AI companies growing much faster and trading at similar or cheaper valuations. So I’ll leave it alone for now.
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Alphabet, Meta Platforms and Taiwan Semiconductor Manufacturing. The Motley Fool holds 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 Plc, long January 2026 $395 calls on Microsoft, short January 2025 $310 calls on Accenture Plc, and short January 2026 calls from $405 on Microsoft. The Motley Fool has a disclosure policy.
Nvidia Says This Artificial Intelligence (AI) Stock Is Worth Watching in 2025 Originally published by The Motley Fool
