3 Stocks to Watch From the Prospering Computer-Services Industry

The Zacks Computer - Services industry participants like CGI Group GIB, CSG Systems International CSGS and Innodata INOD are riding on the ongoing digital transformation, which is increasing the demand for cloud-enabled software solutions. The growing adoption of digital transformative techniques in healthcare and financial services has been a silver lining for industry participants. The growing need for consulting, research, and cybersecurity solutions, stringent regulations, digital healthcare, and the growing adoption of business automation solutions are likely to continue driving the industry’s prospects. However, industry participants continue to face broader macroeconomic challenges, including higher tariffs that have resulted in an elongated sales cycle, lower conversion rates, and customer delays in making purchase decisions.

Industry Description

The Zacks Computer - Services industry primarily comprises companies that offer cloud and software-based solutions. Their offerings include consulting and research solutions, security solutions, business support solutions and systems engineering, as well as software application development solutions. The industry participants cater to varied end markets and customers, including intelligence, defense, U.S. government agencies, communications, banking, financial services, insurance, healthcare, and media and entertainment. Consultancy companies in the industry are helping clients in their ongoing digital transformation. They provide end-to-end services, including application development, integration and maintenance, technology infrastructure management and business process services.

3 Computer-Services Industry Trends to Watch

Remote & Hybrid Work Trends Boost Prospects: The industry’s growth is expected to accelerate in the days ahead based on an increasing number of remote and hybrid workers. In this era of digital transformation, enterprises are actively seeking a common ground between on-premise and cloud infrastructures, enabling them to provide flexible and easily adaptable hybrid solutions. The growing remote-working trend has led to increased demand for cloud and cost-efficient business support solutions, as well as other digital monetization solutions, which bode well for the industry.

Growing Cyber Attacks Are Creating a Tailwind: The increasing number of cyberattacks and related security risks are expected to keep the industry’s momentum alive. Government agencies are ideal targets for cyberattacks, as they are entrusted with sensitive information. Therefore, the growing need for cybersecurity solutions and services in critical areas like defense, intelligence and civilian agencies of the U.S. government bodes well for industry players.

Regulatory Compliance Drives Demand: Companies in this industry are likely to benefit from increasingly complex network systems and sensitive information environments in which governments and businesses operate. Industry participants are keeping pace with global regulatory and business practice requirements, thereby helping customers incorporate the best practices while complying with governmental and industry norms.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Computer – Services industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #97, which places it in the top 40% 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 bright 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.

The industry’s position in the top 50% of the Zacks-ranked industries is the result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since March 31, 2025, the Zacks Consensus Estimate for the industry’s 2025 earnings has moved north by 2.6%.

Given the bullish industry outlook, there are a number of stocks worth watching currently. But before we present those 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.

Industry Lags Sector and S&P 500

The Zacks Computer – Services industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 Index over the past year.

The industry has dropped 0.6% over this period compared with the S&P 500’s appreciation of 13.3% and the broader sector’s return of 15.9%.

One-Year Price Performance

Industry's Current Valuation

On the basis of forward 12-month P/E, which is a commonly used multiple for valuing computer services stocks, we see that the industry is currently trading at 17.08X compared with the S&P 500’s 22.69X and the sector’s forward 12-month P/E of 23.15X.

Over the last five years, the industry has traded as high as 19.59X and as low as 13.14X, with a median of 16.21X, as the charts below show.

Forward 12-Month Price-to-Earnings (P/E) Ratio

3 Computer-Services Stocks to Watch Right Now

CSG Systems International: This Zacks Rank #2 (Buy) company benefits from improving revenue visibility and diversified business driven by data-driven CX monetization and payment solutions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CSGS expects to deliver 2% to 6% organic revenue growth and to diversify revenues from bigger, faster-growing new industry verticals to greater than 35% of total CSG revenues by 2026. CSG Systems plans to expand non-GAAP adjusted operating margin with a long-term range of 18% to 20% and deliver mid-single-digit annual organic revenue growth in most quarters and years. Adjusted free cash flow is now expected to improve at a strong double-digit rate for both 2025 and 2026. 

The Zacks Consensus Estimate for CSG Systems’ 2025 earnings has been steady at $4.77 per share over the past 30 days. The stock has returned 21.5% year to date.

Price and Consensus: CSGS

CGI Group: This Zacks Rank #3 (Hold) company is benefiting from strong performance in the government and financial services end markets. CGI Group’s strong focus on driving monetization and operational efficiency is helping the company win clients in the government end market. 

GIB continues to reinvest in its business and is expanding its portfolio of in-demand offerings in areas such as AI and generative AI, cybersecurity, cloud and IT services. Acquisitions – BJSS, Novatec and Momentum – expand CGI’s footprint. BJSS buyout expands CGI’s U.K.-wide presence in financial services and government while Novatec expands presence in Germany and Spain across commercial industries, including financial services. Momentum acquisition boosts CGI’s public sector presence in Quebec City. The pending acquisition of Apside will strengthen footprint in France, Canada, Portugal, Belgium, Morocco and Switzerland. 

The Zacks Consensus Estimate for GIB’s fiscal 2025 earnings has increased 0.5% to $5.97 per share over the past 30 days. The stock has declined 8.2% year to date.

Price and Consensus: GIB

Price and Consensus: INOD

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This article originally published on Zacks Investment Research (zacks.com).

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