Dull discretionary spending makes Cognizant cut its full-year revenue guidance after Infosys

Teaneck-headquartered Cognizant Technology Solutions has become the second company after Infosys to cut its annual growth guidance, indicating continued softness in spending by clients. The company, which posted revenue of $5.6 billion, an increase of 4.8% in constant currency for Q3 of 2026, said that macro uncertainty has impacted healthcare and consumer-facing sectors more than we had previously assumed. However, it was not enough to offset the incremental areas of softness.

“These macro factors have led to additional pressure on discretionary spending. Our fourth-quarter and revised full-year guidance reflect these market dynamics. The guidance now assumes slightly lower contribution from third-party resales associated with our integrated offering strategy, and higher impact from furloughs in the fourth quarter than previously expected,” said Jatin Dalal, CFO, during the earnings call.

Cognizant has cut the upper end of its full-year constant currency revenue guidance from the earlier 5.5% to 4.4%. Its new full-year growth projection has now been restated to 4.0% to 4.4%, and for the fourth quarter, the company expects revenue to grow 3.2% to 4.7% year-over-year in constant currency, including 200 basis points from acquisitions.

Recently, Infosys also cut the upper end of its FY27 full-year growth guidance to 1%–2% from the previous 1.5%–3.0% following its Q2 FY27 earnings, citing softer volumes, persisting pricing pressure and AI impact. However, Cognizant’s Q3 performance still outpaces the growth of most of its peers in the recently concluded Q2 FY27, where TCS, Infosys and HCL Tech posted constant currency YoY growth of 2.8%, 1.5% and 2.6%, respectively.

Explaining the quarter’s performance, Ravi Kumar Singisetti, CEO and Director, said that the company's trailing twelve-month bookings increased by 4%, with three large deals with TCV of more than $100 million each, and the TCV of large deals increasing 9% year-over-year.

“Renewals are actually lower and new bookings are higher now. So our renewal percentage was roughly in the range of 48% – our new booking was roughly in the range of 48% and now it's actually 60%. So, the good news is that new bookings will quickly translate to revenue. So, the book-to-bill still remains at 1.3, but the translation to revenue will be faster because new bookings are now 12% higher on a TTM basis over the last quarter,” Kumar told analysts during the post-earnings call.

Fewer than expected job cuts under ‘Project Leap’

The company also revised its earlier estimate of the impact of ‘Project Leap’, a cost exercise that the company announced at the end of April this year. Cognizant now expects the total cost to be $180 million-$250 million, down from its earlier estimate of $230 million to $320 million, due to lower employee severance and other personnel-related costs. The exercise is expected to generate around $200 million in savings in 2026.

“I think the overall scope of lower numbers has a reduction in personnel cost, and that is because we are beginning to see that the training investments, training keenness and ability to transform ourselves is beginning to take effect. And therefore, we can repurpose and redeploy a lot more than what we originally anticipated,” Dalal said.

Project Leap was the company’s push to realign its operating model with AI at the centre, with cost savings being reinvested to support future growth across integrated offerings, AI capabilities and partnerships.

India listing and PERM ban

A year ago, around the same time, Cognizant said it was evaluating the possibility of listing the company's shares on Indian stock exchanges. Providing an update, the company said that it was still on the table and that it was closely working with all stakeholders.

“We are monitoring for proposed updates to the regulatory framework, which we understand may be made public in coming months as part of a required comment period. Once that is available, we are prepared to complete our evaluation expeditiously and make a decision,” Dalal said.

Despite being one of the IT firms affected by the recent actions of suspending PERM processing and restricting applications for new ones by the US Labour Department, the company sees no material impact. The company said that it had approximately 32,000 employees in the US and had invested significantly to scale its local talent base over the last several years.

On the company’s latest performance, Nomura analysts noted that, though near-term discretionary pressure persists, the company remains in the ‘winner’s circle’. They retained a Buy call and said it remains one of their top picks in the large-cap category.

“We raise our FY26-27F EPS by 1-3% after factoring in the 3Q results, and slightly lower share count (due to accelerated buybacks). We value CTSH at an unchanged 12x FY27F EPS,” the note said.