The company, operating on a September-August financial calendar, had won $100 million in pure-play GenAI projects in the year-ago period after it first quantified the deal value of the new technology in June last year. In the current fiscal year, Accenture had recorded $650 million and $400 million in GenAI projects during the second and first quarters, respectively.
The third quarter saw Accenture’s total order bookings hit $21.1 billion, with GenAI deals accounting for 4.3% of this total, a significant increase from the 0.6% share in the year-ago period.
“With over $900 million in new GenAI bookings this quarter, we now have $2 billion in GenAI sales year to date, and we have also achieved $500 million in revenue year to date. This compares to approximately $300 million in sales and roughly $100 million in revenue from GenAI in FY23,” Accenture’s chair and chief executive Julie Sweet said in a post-earnings discussion with analysts on Thursday.
“GenAI is acting as a catalyst for companies to more aggressively go after cost, build digital core and truly change the ways they work, which creates significant opportunity for us,” Sweet added.
GenAI, which includes technology driving innovations like ChatGPT, spans a broad array of capabilities, including creating new content forms such as text, audio, and video.
Competitive landscape and market position
Accenture’s early success in GenAI contrasts with homegrown technology services majors, such as Tata Consultancy Services Ltd, Infosys Ltd, and HCL Technologies Ltd, which are still navigating their AI strategies.
Save for TCS, which claims to have $900 million of AI deals pipeline, none of the technology services firms have disclosed their earnings from this technology, considered by many as the biggest risk to the outsourcing industry.
“The $2 billion in bookings YTD (year to date) in FY24 compares to about $2.2 billion in Azure AI revenues in the prior three reported quarters through March 2024. Moreover, Accenture has generated about $500 million in revenues thus far in FY24 versus about $100 million in revenues in FY23,” Keith Bachman, an analyst with BMO Capital Markets, wrote in a note dated 20 June.
Arvind Ramnani and John Nutt, analysts at investment firm Piper Sandler & Co., had in December estimated that the GenAI business could become a $4 billion venture for Accenture in the current financial year.
Accenture Q3 performance
Amid ongoing macroeconomic uncertainties, Accenture’s revenue in the third quarter totalled $16.5 billion, marking a 0.6% decline from the year-ago period. The company revised its full-year revenue growth expectations to between 1.5% and 2.5%, down from an earlier forecast of 1% to 3% for the fiscal year ending in August 2024.
Considering acquisitions contributing 3% to the company’s annual growth, Accenture, which reported $64.1 billion in revenue last year, is experiencing a decline in organic growth.
“Accenture’s results were good enough, given the backdrop of muted expectations,” Piper Sandler analysts Ramnani and Nutt wrote in a note on June 20. “We view management’s tone today as a ‘tick-up’ from 2Q.”
“We note that GenAI-related work is still in the early innings and that projects remain relatively small in size. Despite this, GenAI continues to pull through AI readiness work as clients prepare their infrastructure to take advantage of the new technology. We expect that once we start to see larger GenAI projects, it will constitute a more meaningful part of overall bookings,” added Piper analysts.
Accenture’s management highlighted that Fortune 500 companies are increasingly relying on technology services firms to help implement GenAI technologies.
“It is important to remember that while there is a near-universal recognition now of the importance of AI, which is the heart of reinvention, the ability to use GenAI at scale varies widely,” Sweet remarked. “Those with strong digital cores are generally seeking to move more quickly, while most clients are coming to realize the investments needed t truly implement AI across the enterprise. Starting with a strong digital core, from migrating applications and data to the cloud, building a new cognitive layer, implementing modern ERP (enterprise resource planning software) and applications across the enterprise, to a strong security layer.”
A more confident commentary and better-than-expected earnings helped shares of Accenture, listed on the New York Stock Exchange, rise 7.3% to close at $306.16 apiece on Thursday.