Is Accenture's Deal With Nvidia a Game Changer?
Much of the artificial intelligence (AI) narrative has so far revolved around software platforms and sophisticated pieces of hardware needed to power these applications. Unsurprisingly, companies designing and manufacturing semiconductors or cloud computing have been some of the biggest beneficiaries of AI demand.
One area that is getting overlooked is professional services -- otherwise known as consulting. Global IT professional services firm Accenture (NYSE: ACN) is quietly emerging as an important component of AI roadmaps.
Below, I'll outline how Accenture's new deal with Nvidia could be a game changer for both parties.
What role do consulting companies play in AI?
On the surface, consulting services may not appear as the most compelling opportunity in the AI realm. Let's look at a simple example.
Law firms pay their attorneys a salary and need to cover that cost. When lawyers are at their clients, they generally keep a tally of the number of hours worked and send a bill based on the time spent on a case. The idea is that the total bill sent to the client covers the lawyer's salary, and hopefully a little more so that the law firm actually makes some profit margin on their attorneys.
By contrast, software is generally a source of recurring revenue, whereas professional services are contracted on an as-needed basis. For this reason, professional services businesses carry lower margins compared to software-as-a-service (SaaS).
With that said, there are some important use cases for consulting in the technology world. After purchasing a software tool, it's possible that employees at the customer do not have the expertise to fully implement the new platform across the enterprise. Software companies understand this dynamic and generally offer one of two solutions.
First, the software company may have its own professional services team in-house, and customers can essentially purchase a package that includes access to these consultants to help implement the new tool as seamlessly as possible. Alternatively, the software company may subcontract with a separate professional services firm and allow their customers to work directly with them.
This is where Accenture comes into play. The company's specialized role pertains to AI implementation strategies for large organizations. I'll explain below how Accenture is getting involved in the AI landscape and make the case for why the company should not be overlooked.
How has AI benefited Accenture so far?
Accenture recently formed an internal unit called the Nvidia Business Group. This practice is going to train 30,000 people on Nvidia's entire AI stack including the company's Foundry, Enterprise, and Omniverse products.
A simple way of thinking about this is that Accenture will help their clients more swiftly integrate generative AI tools based on Nvidia protocols. As a result, companies should be able to scale their AI initiatives more quickly, thereby leading to higher productivity and innovation.
While this model might sound opportunistic, AI has been an important growth driver for Accenture recently.
For the fiscal year ended Aug. 31, Accenture generated $3 billion in bookings for generative AI services. Keep in mind that Accenture is a global practice and did roughly $81 billion in total bookings for all of fiscal 2024.
Considering AI is still in its early days and the company's partnership with Nvidia is brand new, I see much further AI-driven growth for Accenture in the years ahead.
Is this deal a game changer?
I do think the deal between Nvidia and Accenture is a game changer for both companies.
From Nvidia's perspective, Accenture is essentially a source of lead generation. Companies that are looking to test and demo different AI enterprise platforms may turn to Accenture for consulting advice or professional services implementation. In turn, Accenture now has an interest in more or less marketing Nvidia's suite and explaining how and why those tools can address a prospective customer's needs.
If Accenture can prove that its AI consulting is actually bearing fruit for Nvidia's clients, the company can theoretically parlay its relationship with Nvidia to other important players in the market. As such, Accenture has an opportunity to broaden its services depending on a client's AI use cases. In turn, the company's generative AI professional services team could blossom into a much larger opportunity.
As I've written about before, I'm generally a fan of keeping an eye out for under-the-radar opportunities that touch larger trends. I see professional services as an underappreciated and misunderstood component of the tech world more broadly, and AI is no exception.
For this reason, I think a position in Accenture could wind up bearing fruit in the long run as the company's AI initiatives take shape.
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Adam Spatacco has positions in Nvidia. The Motley Fool has positions in and recommends Accenture Plc and Nvidia. The Motley Fool recommends the following options: long January 2025 $290 calls on Accenture Plc and short January 2025 $310 calls on Accenture Plc. The Motley Fool has a disclosure policy.
Is Accenture's Deal With Nvidia a Game Changer? was originally published by The Motley Fool