Cognizant posts solid Q4 as AI-driven large deals and productivity lift margins and cash flow

Cognizant finished 2025 with stronger-than-expected top-line momentum, margin expansion and a meaningful increase in large, long-duration contract wins. Management described the year as a pivot from stabilization to growth, highlighting a material uptick in multi-hundred-million-dollar agreements and several outsized wins that lifted trailing contract value and bookings. The company is pursuing a three-pronged approach to monetize AI: embedding generative and agentic capabilities into traditional software cycles, creating new agentic software revenue streams, and productizing platform IP for repeatable deployments. That strategic shift is already evident in demand metrics—bookings and total contract value rose, fixed-price engagements account for a larger revenue share, and verticals such as financial services and BPO outperformed. Margins held up despite higher variable pay and targeted acquisitions to deepen cloud engineering capabilities, while free cash flow remained strong and capital returned to shareholders totaled roughly $2 billion for the year. Management set 2026 guidance that factors in modest inorganic contribution, expected sequential improvement in the back half of the year, and continued margin discipline; they emphasized confidence in large-deal ramp timelines but cautioned about Q1 seasonality and bill-day effects. Execution risk centers on delivering productivity within a growing fixed‑price book and on converting a healthier pipeline of large deals into timely billings. The company is simultaneously investing heavily in workforce transformation—broad AI reskilling and expanded campus hiring—on the view that a scaled human‑plus‑agent delivery model will preserve or improve unit economics. Cognizant’s results and commentary parallel a wider vendor trend of beginning to convert AI-related backlog into cash and shareholder returns, which supports the thesis that AI can be a near-term earnings and cash-flow lever when paired with disciplined capital allocation. However, that same dynamic raises sensitivity to delivery execution and the timing of revenue recognition: sustained margin and cash-flow improvement depends on converting booked TCV to billed revenue on schedule and maintaining productivity gains as fixed-price exposure grows. Investors should therefore weigh the quality and timing of large deals, the durability of margin expansion amid higher compensation and integration costs, and the pace at which AI investments translate into repeatable software and platform revenue.