IT Stock To Buy: This IT major could rally 54% as CLSA bets big amid AI boom

IT Stock to BUY: Shares of Coforge Limited gained more than 4 per cent on Tuesday after global brokerage CLSA said the IT services company is likely to emerge as one of the biggest beneficiaries of the artificial intelligence (AI) cycle.

The brokerage maintained its “high-conviction outperform” rating on the stock and revised its target price slightly lower to Rs 2,075 from Rs 2,095 earlier. Despite the marginal cut, the revised target still implies an upside potential of nearly 54 per cent from current levels.

Shares of Coforge Limited were trading 4.1 per cent higher at Rs 1,402.7 on Tuesday, extending gains from the previous session. However, the stock remains well below its 52-week high of Rs 1,994.

CLSA highlights strong AI positioning

According to CLSA, Coforge’s positioning in the ongoing AI transition is reflected in several operational metrics, including a strong order book, rising revenue per employee and expanding EBIT margins.

The brokerage said the current IT services environment demands management teams that are willing to disrupt traditional human-led delivery models and shift towards outcome-based and token-consumption-led models enabled by AI technologies.

“Coforge has clearly demonstrated this shift in its approach and aggression with its bold bets and acquisitions,” CLSA said in its note.

Encora acquisition, margin guidance seen as positives

The brokerage also pointed to Coforge management’s execution track record, which it said was evident in the company’s better-than-expected margin guidance for FY27.

CLSA noted that the company has guided for stronger EBITDA and EBIT margins even after the acquisition of Encora.

The brokerage added that Coforge’s decision to exit a low-margin Indian government project with weak working capital dynamics has further improved the company’s free cash flow to profit-after-tax conversion guidance.

EPS estimates raised

Reflecting confidence in the company’s growth outlook, CLSA increased its FY27 and FY28 earnings per share (EPS) estimates for Coforge by 9 per cent and 5 per cent respectively.

The revised estimates are around 7 per cent ahead of Bloomberg consensus expectations for FY27, according to the brokerage.

Coforge has been focusing on digital transformation, cloud, engineering and AI-led offerings as enterprises globally increase spending on technology modernisation and automation initiatives.