Cognizant (CTSH) Q3 2025: Large Deal TCV Climbs 40% as AI Builder Model Drives Nonlinear Gains
Cognizant’s AI builder strategy accelerated in Q3, with large deal total contract value (TCV) surging 40% year-over-year and all segments delivering organic growth. The company’s pivot to outcome-based and platform-driven services is materially lifting revenue per employee and margins, signaling a structural shift in delivery economics. Management is guiding above initial full-year targets, citing robust demand for AI-led transformation and a healthy pipeline of both mega and discretionary deals into 2026.
Summary
- AI Platform Execution: Nonlinear revenue and margin per employee gains reflect Cognizant’s shift to AI-driven, platform-led delivery.
- Deal Momentum Broadens: Large and mega deals, up 40% in TCV, are fueling sector-wide growth and expanding backlog visibility.
- 2026 Tailwinds Building: Accelerating innovation-led demand and global expansion position Cognizant for continued outperformance.
Performance Analysis
Cognizant delivered 6.5% constant currency revenue growth in Q3, with all four segments—Financial Services, Health Sciences, Products & Resources, and Communications, Media & Technology—posting organic gains. North America led geographically, up nearly 8%, underpinned by large deal wins and the Belkan acquisition. Notably, the company’s BPO (business process outsourcing) revenue grew 10% for a second straight quarter, on track to reach a $3 billion annualized run rate, while digital engineering and cloud infrastructure modernization businesses grew 8% and 10% respectively year-to-date.
Profitability also improved, as adjusted operating margin expanded by 70 basis points year-over-year to 16%, driven by disciplined expense management, AI-enabled delivery, and higher utilization. Revenue per employee rose 8% and operating income per employee rose 10%—a direct result of Cognizant’s increasing mix of fixed-bid and outcome-based contracts (now nearing 47% of business). Free cash flow conversion was strong, supporting $1.5 billion in year-to-date capital returns and a robust net cash position.
- AI-Driven Productivity: Approximately 30% of internal code is now AI-generated, with management targeting 50% in coming years.
- Deal Flow Diversification: Six new deals over $100 million TCV signed in Q3, bringing the year-to-date total to 16 and driving a 5% trailing 12-month bookings increase.
- Margin Expansion: Operating margin gains reflect both cost discipline and a structurally higher-value delivery model as AI adoption scales.
Despite lumpiness in quarterly bookings, the backlog remains strong, with a 1.3 trailing 12-month book-to-bill ratio and growing visibility into 2026. The company’s ability to convert AI-driven productivity into both cost savings and innovation spend is creating a self-reinforcing cycle of growth.
Executive Commentary
"Our investments in platforms, intellectual property, partnerships, and in upskilling of people are evolving Cognizant into an AI builder capable of scaling agentic AI across the enterprise."
Ravi Kumar, Chief Executive Officer
"We continue to execute with discipline driving improved revenue growth while investing in our people, technology, and partnership to support our AI builder strategy and long-term growth. At the same time, we are delivering consistent margin expansion."
Jatin Dalal, Chief Financial Officer
Strategic Positioning
1. AI Builder Model and Platform-Led Delivery
Cognizant’s transition from traditional IT services to an “AI builder” is reshaping the business model. By embedding AI across the software development lifecycle (via FlowSource and code assist platforms), the company is compressing delivery cycles, reducing technical debt, and unlocking non-linear growth. This shift is visible in the rising share of fixed-price and outcome-based contracts, and in the company’s ability to deliver higher revenue and margin per employee.
2. Large Deal and Mega Deal Momentum
Large and mega deals are now a cornerstone of Cognizant’s growth strategy. In Q3 alone, six deals over $100 million TCV were signed, with year-to-date large deal TCV up 40% year-over-year. These wins are increasingly driven by AI-led innovation and platform consolidation, not just cost takeout. The pipeline is broadening geographically, with Europe and Asia Pacific ramping alongside North America.
3. AI Ecosystem Partnerships and IP Development
Strategic partnerships with frontier AI model providers (like Anthropic and Google Gemini Enterprise) and the development of proprietary platforms and multi-agent systems are deepening Cognizant’s differentiation. The company’s context engineering and agentic development lifecycle (ADLC) initiatives are enabling enterprise-grade AI adoption, while intellectual property—such as new model pre-training techniques and multi-agent workflow orchestration—are being monetized through both direct services and platform deployments.
4. Workforce Transformation and Pyramid Optimization
Upskilling and AI fluency are being driven at scale, with over 250,000 employees trained in AI-led skills. The company is doubling new graduate hiring and optimizing its talent pyramid, which is both reducing costs and accelerating the transition to an AI-native workforce. This is a key enabler for delivering higher productivity and margin expansion even as the business moves up the value chain.
5. Sector-Specific Expansion and BPaaS Growth
Vertical solutions, such as TriZetto in healthcare and agentic platforms in financial services, are fueling above-market growth in core industries. The BPaaS (business process as a service) model, especially in healthcare, is driving double-digit growth and expanding the addressable market as clients seek to automate administrative processes and unlock predictive care.
Key Considerations
Cognizant’s Q3 results mark a structural inflection in delivery economics, with AI-driven productivity and platformization driving both top-line and margin outperformance. The company’s dual-engine strategy—balancing cost-saving productivity with innovation-led transformation—positions it well for ongoing demand, even as macro uncertainty persists.
Key Considerations:
- Nonlinear Value Creation: Revenue and margin per employee gains suggest a durable shift in the economics of service delivery as AI adoption accelerates.
- Deal Mix Evolution: The rising share of fixed-bid and outcome-based contracts is increasing visibility and profitability, while reducing reliance on time-and-materials.
- AI Ecosystem Depth: Proprietary IP, context engineering, and partnerships with leading AI model providers are creating defensible differentiation.
- Sector Leadership: Healthcare BPaaS and financial services AI deployments are setting the pace for vertical expansion and cross-selling opportunities.
- Capital Allocation Discipline: Continued strong free cash flow supports both strategic M&A and shareholder returns, with nearly $5 billion returned since 2022.
Risks
Macro uncertainty, client budget scrutiny, and lumpy bookings remain potential headwinds, especially as discretionary spend in certain verticals remains variable. Integration risk from acquisitions, evolving competitive dynamics in AI services, and the sustainability of pricing power as productivity gains are passed through to clients should be monitored. Regulatory changes—such as H-1B visa policy shifts—are not expected to have material near-term impact, but remain a watchpoint.
Forward Outlook
For Q4 2025, Cognizant guided to:
- Revenue growth of 2.5% to 3.5% constant currency, all organic
- Adjusted operating margin of approximately 15.7%, at the upper end of prior guidance
For full-year 2025, management raised guidance:
- Revenue growth of 6% to 6.3% constant currency (up from 4% to 6%)
- EPS of $5.22 to $5.26, representing 10% to 11% year-over-year growth
Management cited continued large deal momentum, a healthy innovation-led pipeline, and strong sector performance as drivers of confidence. Key factors include:
- Ramp of mega and large deals into 2026
- Ongoing expansion of AI-led discretionary projects and sector-specific solutions
Takeaways
Cognizant’s Q3 confirms a structural inflection in its business model, with AI and platformization driving both growth and margin expansion. The company’s ability to convert productivity gains into reinvestment for innovation is creating a sustainable flywheel of value.
- AI Builder Model Delivers: The blend of proprietary platforms, partnerships, and workforce transformation is translating into real financial and operational leverage.
- Deal Momentum Drives Visibility: Large deal TCV growth and backlog expansion support above-peer revenue growth and sector leadership into 2026.
- Watch Productivity Pass-Through: The balance between sharing AI-driven cost savings with clients and maintaining pricing power will be key to sustaining margin gains as competition intensifies.
Conclusion
Cognizant’s Q3 2025 results showcase a company executing on its AI builder vision, with broad-based growth, expanding margins, and a robust deal pipeline. Structural shifts in delivery and commercial models are positioning the company for continued leadership as AI adoption accelerates across industries.
Industry Read-Through
Cognizant’s results signal a broader inflection for IT services, as AI-driven productivity and platformization reshape both demand and delivery models. The rapid rise in fixed-bid, outcome-based contracts and the success of BPaaS offerings highlight a secular shift away from traditional labor-based models. Competitors will need to invest aggressively in proprietary AI platforms, context engineering, and workforce transformation to keep pace. The accelerating linkage between infrastructure spend and services demand suggests that the lag between hardware, software, and services cycles is compressing, raising the stakes for those not yet pivoting to AI-native models.