The long and the short of IT
'Never wrestle with a pig. You both get dirty and the pig likes it.'
GenAI is a step change for the IT industry. Yet the opportunity is being buffeted by the ‘macro’ – trying to battle it is like wrestling a pig. Across Nasdaq, Q1 2025 earnings growth is expected to be 6.2% Y/Y on 3.8% higher revenues. This marks a slowdown from the previous double-digit gains and trails downward revisions due to shifting sentiment around the AI investment cycle and mixed macroeconomic signals. Starting 14 April, Q1 reporting will resemble WrestleMania. At his results JPMorganChase’s Chair and CEO Jamie Dimon commented that “the economy is facing considerable turbulence (including geopolitics), with the potential positives of tax reform and deregulation and the potential negatives of tariffs and “trade wars,” ongoing sticky inflation, high fiscal deficits and still rather high asset prices and volatility. Wall Street hoped that the second Trump term would mirror the first. Now the relationship is beginning to sour. As Q1 reporting gathers pace, tech company commentary, like Jamie, is torn between the GenAI (see Stanford AI Index) opportunity and that unsettling macro. In the mix, caution wins and the tariff/macro commentary is negative. It is a pig.
Latest Tech Universe results span Recruitment (Freelancer, Hays, Robert Walters); IT Professional Services (Atos, Kainos, TCS, Wipro); UK Software (Accesso, Cerillion, Cirata, Kooth); Gaming (tinyBuild); UK Hardware (Alphawave IP) Read on. Data insights inform our evolving views on the tech-economy.
AI reasoning and the ‘human in the loop’– the Stanford view
The annual Stanford Artificial Intelligence Index Report is published. There is tons of information there, and well worth shutting yourself away for a deep dive. Our interests include:
New reasoning capabilities.
New reasoning paradigms, (notably test-time compute), are improving model performance. In 2024, OpenAI introduced models like o1 and o3 that are designed to iteratively reason through their outputs and both have shown impressive results across a range of tasks (programming, quantum physics, and logic). Their reasoning capabilities are attributed to their chain-of-thought process and ability to iteratively check answers. These models break complex problems into smaller, more manageable steps before executing them.
This test-time compute approach dramatically improved performance, with o1 scoring 74.4% on an International Mathematical Olympiad qualifying exam, vs GPT4o’s 9.3%. However, this reasoning comes at a cost: o1 is nearly six times more expensive and 30 times slower than GPT-4o. However, complex reasoning remains a problem even after the development of approaches such as chain-of-thought reasoning.
Stanford opines that despite the significantly improved performance of LLMs, they cannot reliably solve problems and so is having a significant impact on the “trustworthiness of these systems and their suitability in high-risk applications”. For us this keeps the ‘human in the loop’.
AI Agents
Looking at AI agents, the academics argue that while in short-time horizon settings (two-hour), top AI systems score four times higher than human experts, but as the time budget increases, human performance surpasses AI—outscoring it two to one at 32 hours. However, AI agents already match human expertise in select tasks while delivering results faster and at lower costs.
Benchmarking for AGI
On artificial general intelligence (AGI) the researchers highlight the ARC-AGI benchmark. This was introduced in 2019 by François Chollet. ARC-AGI tests the ability of systems to generalise beyond prior training. It presents AI systems with a set of independent tasks where each task includes demonstration or input pairs followed by one or more test or output scenarios. The benchmark emphasises generalised learning ability and is considered to be an exceptionally challenging benchmark. When first run in 2020, the top-performing system achieved a score of only 20%, by 2024 it rose to 33%. However, this year has seen substantial progress, with OpenAI’s o3 model achieving a score of 75.7%. In settings where o3 was allocated a high compute budget exceeding the benchmark’s $10,000 limit, it achieved a score of 87.5%.
Mapping the Rise of the Machines
Source: AI Index Report 2025
Latest results round up
IT Professional Services
Cohort scenario. The early Q1 KPIs suggest that the recovery is on track with revenue, margin and FTE growth - although the early reports are from offshore companies so there might be an underlying share gain story which has yet to properly ‘surface’. Generally bookings have recovered (this is happening globally) and revenue growth c5-6% looks achievable as the IT Professional Services cohort slowly emerges from the aftermath of the Covid and immediate post-Covid environment which saw the industry over-hire. Since then, staff attrition dried up impacting profitability. However, more recently attrition has been shuffling upwards, the industry has some pricing power (i.e. inflation clauses) and so revenue growth has been rekindled. In addition, GenAI has given the industry a new secular growth driver and a new twist to Digital Transformation programs. From the KPI dashboard the industry is slowly starting to rehire and re-train existing staff which in the short-term dents utilisation. Shares in the cohort are cheap reflecting the past two difficult years, rather than the dashboard which is starting to telegraph a recovery.
Atos. Q1 revenue continued the slide at Atos, but in fairness there was some good news in the mix, but too early to call any recovery. Q1/25 revenue, €2068m -15.9% Y/Y, with Eviden €973m -14.0% Y/Y and Tech Foundations €1,095m -17.5% Y/Y. Q1/25 order entry, €1.7bn (book-to-bill 81%) was +17 points vs Q1 2024. UK / IR revenue (14.9% of Group) was the worst performing region being -28.8% Y/Y with Eviden UK revenue (down “double digit”) due to Public Sector market softness and revenue in Tech Foundations also down double digit, due primarily to previously announced large contract exit in Public Sector BPO.
Positively cash consumption was c. €-40m a very large change on the €-415m last year – and since then 20k staff have left the firm. Philippe Salle, Chair and CEO commented that the “commercial activity continued to recover during the quarter”. Capital Markets Day 14 May.
Kainos. At an FY Update Kainos said that it expected to report revenue and Adj PBT in line with consensus after it recorded a “low-single-digit percentage growth” in FYQ4 (to 31 March) in what was described as a “volatile macro-economic environment”. This was good news given that shares were weak for a long while. The mid-point of consensus indicates FY revenue £365.6m, from £382.4m last year, the -4.4% rate compares to the industry 5% revenue growth last year. The mid-point Adj PBT £65.4m is down from £77.2m last year and indicates a 17.7% margin, vs 20.2% last year. While the margin slip was more pronounced at Kainos, industry margins also dipped last year. In March, Kainos reduced the workforce by c7%, 190 FTEs running contrary to the wider IT Professional Services industry which started to re-hire from Q3/24.
The update suggested that Kainos is ‘late cycle’ but it has now captured some growth upswing. However, that 7% headcount reduction just at FY end means that immediate growth prospects are limited at a time when the wider industry is growing, retraining and re-skilling for AI – hopefully Kainos has not cut growth muscle.
From the Kainos segments:
Workday Products division ARR in excess of £72m at period end and Kainos reiterates the £100m ARR by 2026.
Digital Services public sector revenues (56% of total) returned to growth in H2 with UK Government improving public services through digital transformation, healthcare revenues continued to grow strongly, “very strong growth” in international-related revenues and Commercial sector activity “remained well below prior-year levels” – rem: in FY24 Commercial was already -19% Y/Y.
Workday Services division (c29% of total) “remained subdued, leading to further reductions in H2”. But there were signs of recovery and increasing activity across the international base, including recent wins in Australia and New Zealand.
Results 19 May 2025.
TCS. Revenue US$7.47bn, +1.4% Y/Y with a 24.2% operating margin and a record TCV, giving a very impressive 1.63x Book-to-bill. K Krithivasan, CEO and MD, flagged the expertise in AI and Digital Innovation as TCS supports customers “in this environment of macroeconomic uncertainty”. While Wipro grumbled about Europe (see below) at TCS Europe grew 1.4%, UK +1.2%, with North America declining 1.9% as Middle East and Africa grew 13.2%, LatAm grew 4.3%, Asia Pacific +6.4%, and India +33%.
Note:
Here is a nice chargeable/repeatable product from TCS. ignio is billed as a “cognitive automation software suite”. In the past quarter it signed 30 new deal wins and 11 go-lives. ignio introduced Code Accelerator and advanced GenAI powered tool designed to automate code generation and transformation, and “significantly” cut time to value for customers. Already deployed across more than 80% of TCS SaaS customers (boosts productivity by 150%) it drives faster product adoption by delivering first-time right use cases. ignio uses GenAI to expedite the migration of its on-premises customers to SaaS, by “seamlessly” (wow!) transforming their code to be compatible with the latest platform.
Tariff talk: K Krithivasan: “We have all been witnessing an increased level of uncertainty in the global economic and geopolitical landscape in the last few weeks, making a shift from our commentary in January. We have seen instances of delays in decision-making and discretionary spending has come under heightened scrutiny and pressure recently.”
The propensity to roll out more GenAI use cases to production is increasing (over a third of client engagements use AI, GenAI for accelerated project outcomes) and the organizational barriers witnessed earlier were diminishing. There is evident maturity in the request for GenAI pilots with a sharper focus on business outcomes rather than mere experimentation.
Wipro. For the second year running revenue weakened to US$2.634bn but net income was +6.4% Q/Q and an EBIT margin, 17.5%, was +1.1% Y/Y. Wipro's revenue decline was due to lower European business, its third largest market. However, Q4 bookings were +11% to US$4bn making a very strong 1.52 Book-to-Bill. Of note, attrition eased back to 15.0%. Srini Pallia, CEO and MD commented that “clients remain cautious in the of macroeconomic uncertainty” and added “Given the uncertainty in the environment, we expect our clients to take a more measured approach going forward, especially on two spend areas, large transformation programmes and discretionary spend.” Pallia added; “The global industry environment remained uncertain for most of the year, and of course, the recent tariff announcements have only added to that”.
The numbers we track: Atos, Kainos, TCS, Wipro
Source: Company data, Technology Investment Services
IT Professional Services KPI dashboard
Gaming
tinyBuild. tinyBuild’s FY24 results were in line with expectations, being slightly lower at revenue but a beat on EBITDA and cash. The outlook commentary is positive with guidance being that FY25 is in line with expectations. tinyBuild, like the entire video games industry, is showing signs of revival following two challenging years. Recovery is now predicated on game releases and in tinyBuild’s case these are already proving hugely popular with Kingmakers and Sand (#15 and #40 on Steam respectively) having the potential to be new global franchises. tinyBuild is delivering on its investor promises to retain emphasis on IP, expand reach and monetise its back-catalogue. The continued drum beat of new titles and monetising the back-catalogue means investor attention can comfortably pivot to tinyBuild’s strong valuation support (EV/Sales 0.7x vs sector 3.1x). These, alongside a material addressable market, give potential for a rating.
See our coverage on Progressive Equity Research platform.
Gaming cohort KPI dashboard
Source: Company data, Technology Investment Services
UK Software
Cohort scenario: These companies are typically smaller than their US counterparts, but all sell and compete globally. In addition to being smaller they typically have poorer KPIs (notably cash-based, ARR, NRR) but have better profitability. The comparative KPI mix may on its own account for the lower valuation and support the view that ‘venue’ has little to do with the valuation. The group is cheaper and pays a dividend/income in addition to share buybacks.
accesso Technology Group. Positively, Accesso hit estimates, but this is bittersweet as the estimates had been downgraded. CEO Steve Brown, said that customers “faced lower levels of consumer activity, and a key strategic project in Saudi Arabia saw a shift in the planned opening date”. Accesso is growing in the Middle East, and the new restaurant and retail solution, accesso FreedomSM, is “gaining traction”.
Tariff talk “Although our operating environment had been improving in recent months, we now need to exercise prudence in the face of possible US tariff-related macroeconomic impacts. It is too early to predict exactly how these dynamics might affect our year ahead, but we are cautiously optimistic given the importance of our dynamic solutions as customers flex product, pricing and promotions in response to changes in the consumer landscape.”
Cerillion. At the Half-year Trading Update we learned that revenue is expected to be c. £20.9m (H1 2024: £22.5m), with the difference reflecting the anticipated higher weighting of software licence renewals/extensions to the H2/25, compared to FY/24 when the majority of renewals/extensions occurred in the first half. Adj EBITDA is expected to be c.£10.0m (H1 2024: £11.0m). Net cash (31 March) increased to c £31.0m (31 March 2024: £26.6m). “Cerillion's new customer pipeline remains very strong and a little ahead of last year's record level.” The company said that it is “very well-placed to meet market expectations for the current financial year and beyond”, with the supporting evidence being:
January's new US$11.4m contract win,
a £5.4m term renewal agreed in March with a major European customer, and
a significant European customer recently confirming its intention to use Cerillion's BSS/OSS software in a major migration programme is expected to benefit revenues in both the current and next FY.
Cirata. We commented on the banner retail win being more important than the recent FY results. The Q1 Trading Update had the full effect of that deal with Bookings, US$3.0m, +330% Y/Y and thereby marking the strongest Q1 bookings since Q1FY19. That contract helped the Data Integration bookings soar to US$2.4m, +700% Y/Y – with that banner contract accounting for US$2m as Cirata signed 14 contracts in the period, five were Data Integration. Also positive was the cash US$8.3m reflecting burn US$1.4m, down from US$4.9m last year. . We note:
North American DI bookings were “disappointing relative to plan”. The sales model is evolving away from hiring 'Partner centric sales' to new business enterprise solutions executives. This is not an easy or quick fix and so expect a continued weak North American DI booking. It usually it takes two quarters for any semblance of physical sales force productivity improvements.
That DI banner contract retailer has a "land and expand" commitment. We like that Cirata supports the implementation of open table formats (such as Apache Iceberg) as this data orchestration functionality evolves Cirata product beyond Hadoop migration to multiple use cases for large scale data modernization.
Q1/25 also featured the first Live Data Migrator ("LDM") implementation under the DMaaS solution offering. At a new UAE-based telecommunications customer this will be the first project win with Databricks to enable Hadoop distributed file system data to migrate to the cloud. DMaaS ASP guided to US$50 -$100k.
CEO Stephen Kelly: “Cirata needs to demonstrate more new logo wins . . . as we move beyond Hadoop migration to deliver data automation and orchestration in a hybrid world. . . . With the significantly reduced cash burn and the best Q1 for over 5 years, the green shoots of all our hard work across the company are beginning to show. "
Parting view. Comforting as it might be, do not expect a large deal each quarter as sales cadence is still work in progress. Investors should buckle-in for more ‘hard lines’ but positively Cirata is addressing a genuine pain point. Petabyte migration and DMaaS should both have a large opportunities (if in doubt see TCS). Meanwhile the now reduced FTE count preserves cash. The annual wage bill alone is reduced from US$15.1m (FY24) to cUS$10.4m – assuming 71 FTEs and at an unchanged Y/Y average FTE salary. That alone underpins the guided cost model of cash overhead annualized run rate exiting Q1FY25 between US$16m-$17m, down from US$25.1m last year.
Cirata: Bookings and cash burn (US$m) One goes up slowly/the other down quickly
Source: Company data, Technology Investment Services
Kooth. Our monitored UK software cohort (n =25) grew revenue by 7.1% in cal2024 - Kooth grew by 100%. Growth was predicated on the company’s success in the US where it landed in California and from referenceability there, it has since expanded into several other states. In California Kooth reached 75k youth and young adults by the end of February 2025 across all 58 counties, with Q1 2025 daily run rate quadruple that of 2024. Furthermore, Kooth inked a new pilot contract in New Jersey and launched a pilot with Aetna Better Health, its first private sector health client. The UK has been more difficult but Kooth says that it maintained its position as NHS England's largest single access provider for mental health support for under 18s following renewals in Cornwall and the Isle of Man, despite the “persisting challenge of ongoing macro-economic conditions”. From the numbers stack note that Adj EBITDA was +598% Y/Y to £15.8m and Kooth had £21.8m net cash at year end - so can fund further growth. The Outlook commentary was positive for the US, balanced by the UK remaining “complex given ongoing policy changes”.
The numbers we track: Accesso, Cerillion, Cirata, Kooth
Source: Company data, Technology Investment Services
UK Software cohort KPI Dashboard
Source: Company data, Technology Investment Services
Recruitment
Cohort Scenario: The KPIs have yet to record any improvement. Recruitment (i.e. Staff, i.e People), as much as technology, is the front-end of the tech economy. From our latest results rollcall the strategic messages from the Recruitment cohort remain downbeat and recovery talk is deferred - but this is not a universal truth - there are pockets of growth and service innovation. In addition, the companies spent 2023 and 2024 downsizing and re-shaping their offer. Now they are better able to meet expectations (given their reduced cost bases and doing more contractor sales). As a positive, all agree that there is a digital skills gap which is a barrier to economic growth. Companies also flag the shortage in tech talent, but slow hiring and slow willingness to move employer has created a bottleneck. While a volatile market, the industry is telegraphing that C-suite turnover is consistent with historical levels. We remind that the impact of AI is contributing to the malaise (i.e. more acceptance of blended environments – so for IT development “organizations won’t just have more developers, they’ll have more production ready code generated by AI and more applications built and deployed by agents”). Our message to investors: Look East, and this week specifically to HRnetGroup. Recruitment remains one of the cheapest cohorts. It usually is at this point of the economic cycle. The lesson from the past is that the pricing here can ‘turn on a penny’ following any economic/MSI data.
Freelancer. Another strong period and telling recruiters how the ‘recruitment growth puck’ might be heading. Q1 revenue, US$14.1m, +11.7% Y/Y with operating profit in 1Q25, and operating cash flow of US$3.5m making cash US$25.4m, being +9.6% on 31 Dec 24. There was a continued strategic focus on AI, which is lifting both liquidity and quality in the marketplace; improving conversion when integrated into the user experience; and growing a new vertical as SMEs increasingly look to integrate AI into their business processes, web interfaces and day-to-day business.
Hays. More of the same from the traditional recruiters with Group net fees down 9% Y/Y with Temp & Contracting and Perm -6% and -14% Y/Y respectively. From the segments, Temp & Contracting volumes rebuilt thru the quarter with in UK&I and ANZ, and are “modestly behind” in Germany. The Perm markets “remain challenging with longer time to hire”. For the cost base Consultant productivity was +5% Y/Y matching the 5% Consultant headcount reduction.
Guidance was as expected with comments that the market conditions “remain challenging” and the company guides that operating profit will be in line with consensus expectations of £56.9m. CEO Dirk Hahn commented that trading was sequentially stable through the quarter as the company is structurally improving and remains confident that “we will benefit materially when markets recover."
Robert Walters. Poor news continues with Group net fee income -16% Y/Y. Forward activity levels are “broadly stable” in Asia-Pacific and the UK, and the weaker sentiment in Europe towards the latter stages of 2024 continued in Q1. Specialist professional recruitment net fee income, £56.0m, was -16% Y/Y, permanent (63% of fees) was -17% Y/Y with temporary (35% of fees) -14%. The downsizing continues with the period end headcount, 3,202, -3% sequentially and -16% Y/Y with the Fee earner headcount -17% Y/Y.
Regional summary: Asia-Pacific net fee income was -15% Y/Y with a comment of “cautious client behaviour in perm but good growth was seen in temp”. Australia was -11% Y/Y, New Zealand -34% Y/Y, Mainland China +12% Y/Y with South-East Asia -16% Y/Y. In Europe net fee income was -22% Y/Y with UK net fee income -4% Y/Y. For anyone thinking of moving to the shires: London +22% Y/Y while the UK regions were -22% Y/Y. Rest of World net fee income -18% and here the Middle East was -12% Y/Y and the USA -49% Y/Y.
CEO Toby Fowlston commented that the global hiring markets “remained challenging during the first quarter” but the company saw some “pockets of growth in the UK” with stable activity levels in Asia-Pacific but weaker sentiment seen in Europe.
Tariff talk: “Increased uncertainty regarding the flow of global trade due to tariffs is likely to be a further headwind to client and candidate confidence in the near term - limiting visibility on the outlook for the balance of the year at the present time. Continual focus is being applied to all elements of our cost base.”
The numbers we track: Freelancer, Hays, Robert Walters
Source: Company data, Technology Investment Services
Recruitment KPI dashboard
Source: Company data, Technology Investment Services
UK Hardware
Alphawave IP. A decent set of final results featuring:
Record bookings of US$515.5m up 34% Y/Y,
Revenue US$307.6m and Adjusted EBITDA of US$51.1m in line with guidance – both down Y/Y (see data chart).
Continued good progress in working down the inventory.
The outlook commentary starts out positively as Tony Pialis, President and CEO confides that "we are confident in the long-term potential of our business." But then drifts to:
Tariff talk: We learn “Due to current global economic uncertainty and the rapidly developing nature of the recently imposed tariff regimes, we are not in a position to provide guidance for full year 2025 or beyond at this point in the financial year.”
The numbers we track: Alphawave IP
UK Hardware KPI Dashboard
Source: Company data, Technology Investment Services
End notes & Disclaimer: Please read
All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. This is not investment advice. Opinions contained in this report represent those of the author at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. The author is not liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained herein. The information should not be construed in any manner whatsoever as, personalized advice nor construed by any subscriber or prospective subscriber as a solicitation to effect, or attempt to effect, any transaction in a security. Any logo used in this report is the property of the company to which it relates, is used here strictly for informational and identification purposes only and is not used to imply any ownership or license rights between any such company and Technology Investment Services Ltd. Email addresses and any other personally identifiable information collected in the provision of the newsletter are only used to provide and improve the newsletter.
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My name is George O’Connor. I am a tech investment and IT industry analyst. I explore shareholder value, its drivers, the best exponents, the duffers. The target readers are investors, companies, advisors, stakeholders and YOU. If you like this please subscribe and pass it on to colleagues and friends. That said, if you hate it - do the same. Thanks for dropping by dear investor.