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IT consulting firm Accenture (ACN -4%) took a spill today despite posting a modest beat on its bottom line in Q4 (Aug). The culprit was likely guidance, as FY24 adjusted EPS fell short of analyst estimates while the midpoint of FY24 sales projections was below consensus. Given its exposure to enterprises' IT departments, ACN has endured plenty of adversity throughout 2022 as spending dried up. However, 2023 has been accompanied by optimism, namely, the outsized potential generative AI brings. Unfortunately for ACN, despite decent AI-related demand, it is not translating to uplifting numbers in FY24, spurring today's profit-taking activity.

• Much of the commentary surrounding Q4 was a carry-over from Q3 (May). ACN continued observing greater caution worldwide, with suppressed discretionary spending, slower decision-making, and a considerable adverse impact from the communications and technology fields' persistent challenges.
• Nevertheless, like last quarter, ACN still delivered upbeat headlines, registering adjusted EPS of $2.71 and revenue growth of 3.6% yr/yr to $15.99 bln, slightly improved from the +2.5% jump in Q3. Adjusted operating margins received a 20 bp bump yr/yr, despite ACN pouring decent capital into its strategic initiatives. Meanwhile, cloud momentum continued tracking positively, delivering double-digit yr/yr growth in Q4.
• Generative AI also played a critical role in ACN's overall financial performance in Q4, with sales tripling sequentially to over $300 mln. With ACN announcing a $3.0 bln investment in AI last quarter, the massive sequential jump in sales is encouraging. Verticals leaning heavily into AI thus far include banking, public service, consumer goods, and utilities.
• CEO Julie Sweet maintained that meaningful demand within cloud migration, business modernization, and generative AI represent huge long-term possibilities. Underlying factors supporting this view included estimates that just 40% of workloads are in the cloud today, only a third of clients have modernized their enterprise resource planning (ERP) systems, and less than 10% boast mature AI capabilities.
• Still, this enthusiasm did not show up in ACN's FY24 guidance. The company expects adjusted EPS of $11.97-12.32, a +3-6% increase yr/yr, and revs of $65.4-67.3 bln, a +2-5% improvement.

While AI maintains its accelerating momentum, most other trends did not drastically change qtr/qtr in Q4. IT spending remains unfavorable, while guidance still does not show signs of a substantial turnaround. Also, ACN mentioned that since its AI projects are "pure Gen AI," rather than traditional data-related AI, they continue to hover in the millions of dollars range, reflecting experimentation amongst enterprises. ACN expects this to persist for some time.

The shift among business owners to move more operations into the cloud and implement digitalization on a broad scale should act as a long-lasting tailwind for ACN. However, the demand environment remains troubling in the interim, potentially keeping a lid on future share appreciation.