Microsoft Just Expanded Its Partnership with a Critical Ally in the Artificial Intelligence (AI) Revolution
Two tech powerhouses are joining forces on AI.
Artificial intelligence (AI) went viral early last year, and since then, there’s been a mad rush to adopt this groundbreaking technology. The next-generation algorithms have the potential to significantly increase the productivity of users that effectively deploy the technology, so it only makes sense that businesses are looking for ways to best incorporate AI into their business.
While it’s still very early in the process, initial applications of generative AI not only create original content but can also summarize and draft responses to emails, create presentations, and summarize data. By streamlining mundane and otherwise time-consuming tasks, businesses benefit from increased worker productivity and the monetary windfall that comes with it.
Now, cloud computing and software giant Microsoft (MSFT 0.37%) and IT services and consulting specialist Cognizant Technology Solutions (CTSH -0.37%) are joining forces to help bring AI to the masses.
Image source: Getty Images.
A pairing of tech titans
In a press release on Monday, Microsoft and Cognizant announced an expansion of their global partnership that will combine their AI and digital transformation expertise “to significantly accelerate AI adoption.”
The goal of the collaboration is to help organizations take a seat at the AI table, driving “industry-specific transformation” focusing on businesses “that have not seen significant disruption in decades.” To further these objectives, Cognizant is deploying 25,000 Microsoft 365 Copilot seats, 500 Services Copilot seats, and 500 Sales Copilot seats to “enhance productivity, streamline workflows, and transform customer experiences.”
In its role as an IT consulting specialist, Cognizant plans to make Microsoft 365 Copilot available to 1 million users across its global list of 2,000 clients in 11 industries. Cognizant notes that through its Synapse skills program, it has already trained 35,000 developers on Github Copilot, with 40,000 more on the waiting list.
Cognizant offers its IT and consulting services in several broad segements, including financial services, health sciences, products and resources, communications and media, and technology. The company says it has relationships with 29 of the top 30 global pharma companies, nine of the top 10 European banks, nine of the top 10 media companies, and 23 of the top 25 healthcare plans. That kind of reach could really jump-start the adoption of Copilot.
One of the highlighted targets is the healthcare industry, which could reap significant rewards from the adoption of generative AI. Cognizant cited a study that found that “generative AI could automate up to one-third of tasks for emergency physicians.” This, in turn, could help address healthcare staffing shortages, improve the quality of patient care, and speed approval times for procedures “from days to just minutes” while increasing “positive patient outcomes.”
A mutually beneficial arrangement
Microsoft saw the writing on the wall, and its early adoption of generative AI has served it well. In its fiscal 2024 second quarter (ended Dec. 31), Microsoft’s revenue jumped 18% year over year, led by Microsoft Cloud — its fastest-growing business segment — which grew 24%, representing 54% of the company’s total revenue. While the company has yet to break out sales related to AI, it did share this gem: “Azure and other cloud services revenue grew 30% and 28% in constant currency, including six points of growth from AI services.”
As a business consulting firm, Cognizant isn’t in the first wave of AI adoption, so its financials don’t yet reflect the benefit of AI. Its fourth-quarter revenue declined 1.7% year over year, though its earnings per share jumped 16%. However, management has been positioning the company for AI success, as 88,000 of Cognizant’s 350,000 employees have completed courses in AI and generative AI to improve their proficiency.
Late last year, the company introduced Cognizant Neuro AI, which was developed to help customers quickly adopt generative AI. Furthermore, the company plans to invest $1 billion to boost its AI capabilities over the coming three years. CEO Ravi Kumar Singisetti said, “We aim to infuse AI not only into our core offerings but into everything we do, including using generative AI to create industry and functional services.”
Furthermore, Microsoft and Cognizant will use Copilot Studio, a platform that helps users create industry- and job-specific Copilots, including such areas as retail and consumer goods, financial services, life sciences, manufacturing, and communications and media.
Investing in the AI revolution
Although Microsoft and Cognizant are taking different paths to the AI revolution, both could still profit from the accelerating adoption of this groundbreaking technology. By combining forces, the pair is working to tap into the “projected $1 trillion that AI is expected to inject into U.S. GDP over the next ten years.”
In terms of valuation, the companies are on different ends of the spectrum. Cognizant is currently selling for just 16 times earnings, while Microsoft’s multiple is 36. For context, the price-to-earnings (P/E) ratio of the S&P 500 is 27. Viewed in a vacuum, Cognizant is a steal at current prices, and Microsoft is selling for a premium — but valuation should never be considered in a vacuum.
In my opinion, Microsoft’s long track record of growth and current AI advantage make it the clear choice, though value investors may be more comfortable with Cognizant. To each their own.
