This IT stock will be a 'top beneficiary' of the AI cycle; CLSA sees 54% upside

Brokerage firm CLSA believes that Coforge Ltd., the IT services provider, would be a top beneficiary of the AI cycle in its latest note on Tuesday, May 19. The brokerage said that their thesis reflects in the company's strong order book, increase in revenue per employee and EBIT margin expansion.

CLSA has maintained its "high-conviction outperform" rating on Coforge with a revised price target of ₹2,075 from ₹2,095 earlier. The revised price target also implies an upside potential of 54% from current levels.

Coforge's management continues to execute positively, which reflected in its better-than-expected margin guidance for financial year 2027 on both EBITDA and EBIT after the acquisition of Encora, CLSA's note said, adding that its move to exit and Indian government project with low margins and poor working capital also helped the company improve its guidance on free cash flow to profit after tax conversion.

The brokerage has increased its financial year 2027 and 2028 Earnings Per Share (EPS) estimates by 9% and 5% respectively, which is 7% ahead of Bloomberg consensus expectations for financial year 2027.

"The current IT services market requires management teams that are proactively willing to disrupt their existing service delivery from purely human-led to outcome+ token-consumption-led. Coforge has clearly demonstrated this shift in its approach and aggression with its bold bets and acquisitions," CLSA wrote.

39 analysts have coverage on Coforge, of which 33 have a "buy" rating, and three each have a "hold" and "sell" rating.

Shares of Coforge are trading 4.1% higher on Tuesday at ₹1,402.7. The stock is extending Monday's gains but continues to remain well below its 52-week high of ₹1,994.