The Zacks Computers – IT Services industry participants are suffering from challenging macroeconomic conditions that are elongating the sales cycle. The adoption of consultation and transaction processing solutions has been affected by an uncertain macro environment. However, industry participants like ServiceNow NOW, EPAM Systems EPAM and DXC Technology DXC have been benefiting from ongoing digitization efforts globally. Robust spending on cloud, Internet of Things (IoT), cyber security, data and analytics, artificial intelligence (AI) and automation is driving industry-wide growth. Solid demand for advanced IT-service infrastructure solutions for hybrid working and digital healthcare has been benefiting the prospects of industry participants. Improving IT spending trends also bodes well for these players.
Industry Description
The Zacks Computers – IT Services industry comprises companies that provide consultancy, communications software and services, IT management and operations, cloud-based web development platform, customer relationship management, professional information solutions, real estate information and analysis, and outsourcing services. Industry participants cater to a wide array of end markets, including manufacturing, telecommunications, banking, insurance, healthcare, government agencies and public sector institutions. They focus on the cyber-security business, the cloud computing market, generative AI, IoT and automation to bolster prospects. Offerings from industry participants help improve engagement with customers, launch products and support new business models, with enterprises going for digital transformation.
What's Shaping the Future of the Computers - IT Services Industry
Digitization Wave is a Tailwind: Most industry participants are modernizing their traditional legacy-oriented business processes to keep pace with evolving IT services. The aim is to integrate the coordination of emerging technologies, including cloud, IoT, AI and analytics. Increasing Internet penetration in emerging markets, particularly across the Asia Pacific, is another tailwind.
Hybrid Work Environment to Boost Prospects: The industry’s growth is expected to accelerate in the days ahead due to an increasing number of hybrid workers. In this era of digital transformation, enterprises are actively seeking a common ground between on-premise and cloud infrastructures, which will enable them to provide flexible and easily adaptable hybrid solutions.
Improving IT Spending to Aid Prospects: Improving IT spending trends bode well for industry participants. Gartner projects IT spending to increase 9.3% over 2024 to $5.75 trillion in 2025. Spending on IT services is expected to witness a 9.4% improvement, much better than the 5.6% growth for 2024.
Zacks Industry Rank Indicates Bullish Prospects
The Zacks Computers - IT Services is housed within the broader Zacks Computer And Technology Sector. It currently carries a Zacks Industry Rank #56, which places it in the top 22% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Given the industry’s bullish prospects, there are several stocks worth buying. But before we present the stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector and S&P 500
The Zacks Computers - IT Services Industry has underperformed the S&P 500 sector and the broader Zacks Computer and Technology sector in the past year.
The industry has returned 12.7% over this period compared with the S&P 500’s appreciation of 26.8% and the broader sector’s surge of 32.1%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing IT Services companies, the industry is currently trading at 52.57X, higher than the S&P 500’s 18.59X and the sector’s 18.74X.
Over the past five years, the industry has traded as high as 62.18X and as low as 30.096X, with the median being 46.93X, as the charts below show.
EV/EBITDA Ratio (TTM)
3 Must-Buy IT Services Stocks
DXC Technology: This Zacks Rank #1 (Strong Buy) company is benefiting from strength in the digital business and partnerships, which are helping it expand in the cloud computing space. You can see the complete list of today’s Zacks #1 Rank stocks here.
Acquisitions are aiding it in augmenting revenues amid intensifying competition in the cloud computing and cyber security spaces. Digital transformation, a focus on customer engagement and product development programs are other key catalysts.
The Zacks Consensus Estimate for DXC’s fiscal 2025 earnings has remained unchanged at $3.18 per share over the past 30 days. DXC Technology shares have declined 11.8% in the trailing 12-month period.
Price and Consensus: DXC
EPAM Systems: This Zacks Rank #2 (Buy) company is gaining from the ongoing digital transformation by enterprises and a continued focus on customer engagement and product development. The company’s sustained focus on strategic acquisitions and partnerships enhances its product portfolio and drives top-line growth.
EPAM’s substantial investment in generative artificial intelligence (Gen AI) capabilities is expected to drive growth as AI becomes increasingly integral to enterprise operations.
The consensus mark for EPAM’s 2025 earnings has been steady at $11.31 per share over the past 30 days. EPAM Systems shares have declined 23.8% in the trailing 12-month period.
Price and Consensus: EPAM
ServiceNow: This Zacks Rank #2 company’s shares have surged 44.9% in the trailing 12-month period. NOW has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. It had 2020 total customers with more than $1 million in annual contract value (ACV) at the end of the third quarter, which represents 14% year-over-year growth in customers.
ServiceNow is riding on an expanding partner base. The Zacks Consensus Estimate for NOW’s 2025 earnings is pegged at $16.42 per share, up a couple of cents over the past 30 days.
Price and Consensus: NOW
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