Accenture faces federal headwinds despite strong Q2 FY25 performance

Accenture delivered a solid performance in the second quarter of fiscal 2025, reporting steady revenue growth, rising earnings per share, and continued expansion in generative AI services. However, the stock saw a notable decline following the results, as concerns about the impact of U.S. federal spending cuts weighed on investor sentiment. While Accenture remains at the forefront of digital transformation, the challenges ahead highlight the balancing act between strong financial performance and external market forces.

How Did Accenture Perform in Q2 FY25?

Accenture reported $16.7 billion in revenue for the quarter ending February 28, 2025, reflecting a 5% year-over-year increase in U.S. dollars and an 8.5% rise in local currency. The company’s growth was driven by robust demand across its core business segments, with consulting revenue reaching $8.28 billion and managed services generating $8.38 billion.

New bookings came in at $20.9 billion, representing a 3% decline in U.S. dollars compared to the previous year, but remained flat in local currency. A key highlight of the quarter was the $1.4 billion in generative AI-related bookings, underscoring Accenture’s continued leadership in AI-powered enterprise solutions.

CEO Julie Sweet emphasized that the company’s focus on digital transformation and AI-driven reinvention is delivering tangible results. She pointed to Accenture’s ability to secure 32 contracts exceeding $100 million each, highlighting the trust placed in the company’s expertise by global enterprises.

What Drove Revenue Growth Across Industries and Regions?

Accenture’s revenue gains were spread across major industries and geographic markets. The financial services sector saw an 11% increase in local currency, generating $3.01 billion in revenue, while health and public service climbed 10% to $3.61 billion. The products industry, which includes consumer goods, retail, and industrial sectors, contributed $5.05 billion, up 9% in local currency.

Regionally, the Americas led the charge with $8.55 billion in revenue, representing an 11% increase in local currency. EMEA (Europe, Middle East, and Africa) followed with $5.8 billion, reflecting an 8% growth. The Asia-Pacific market saw a 1% increase in local currency, but revenue in U.S. dollars declined by 3%, reflecting currency fluctuations and uneven regional demand.

Accenture’s consulting division experienced a 6% increase in local currency, reinforcing the company’s strong advisory capabilities in strategy and technology. Meanwhile, managed services continued to be a key revenue driver, expanding 11% in local currency as enterprises sought long-term operational support in cloud computing, cybersecurity, and AI adoption.

How Profitable Was Accenture in Q2 FY25?

Accenture’s profitability remained strong, with operating margin increasing to 13.5%, a 50-basis-point improvement over the previous year. The company also reported diluted earnings per share (EPS) of $2.82, reflecting a 7% year-over-year growth.

Despite strong financial fundamentals, Accenture’s gross margin declined to 29.9% from 30.9% a year earlier, pointing to higher operating costs and inflationary pressures. Free cash flow for the quarter stood at $2.68 billion, supporting a quarterly dividend of $1.48 per share, which marked a 15% increase from the prior year.

Accenture continued its capital return program, repurchasing 4 million shares valued at $1.4 billion, reducing its total share count and enhancing shareholder value.

Why Did Accenture’s Stock Decline Despite Strong Earnings?

Following the earnings release, Accenture’s stock declined as investors weighed the company’s strong results against external risks. As of March 22, 2025, Accenture’s stock was trading at $305.32, with intraday volatility reflecting investor uncertainty.

One major concern is the impact of U.S. federal government spending cuts. The Department of Government Efficiency (DOGE), led by Elon Musk, implemented aggressive cost-cutting measures, leading to the cancellation of several multimillion-dollar contracts with Accenture. This shift has introduced procurement slowdowns that may weigh on Accenture’s future revenue growth, particularly in government-related contracts.

Federal spending accounted for approximately 8% of Accenture’s global revenue and 16% of its Americas revenue in fiscal 2024. With new procurement delays and fewer government projects in the pipeline, the company could face near-term revenue headwinds in this segment.

Analysts have responded by adjusting their outlooks. Deutsche Bank lowered its price target to $290 from $365, citing risks from federal budget cuts. TD Cowen reduced its target to $365 from $394, maintaining a Buy rating but noting uncertainties in government procurement. UBS adjusted its forecast to $387 from $455, reflecting concerns over Accenture’s exposure to policy-driven spending changes.

Despite these downward revisions, the overall analyst consensus remains “Moderate Buy,” with an average price target of $380.05, indicating a potential 24.54% upside from the current stock price.

What Is Accenture’s Updated Outlook for Fiscal 2025?

Given its Q2 performance, Accenture has narrowed its full-year revenue growth forecast to 5%-7% in local currency, refining its prior guidance range. The company expects a foreign exchange impact of approximately -0.5%, but its operating margin outlook has improved to 15.6%-15.7%, reflecting stronger profitability.

The company has also adjusted its full-year diluted EPS projection to $12.55-$12.79, up from its previous estimates. This forecast suggests continued earnings momentum, driven by Accenture’s deep investments in AI, cloud services, and digital transformation.

Looking ahead, AI-driven services remain a key growth area. The company’s $1.4 billion in generative AI bookings this quarter reinforces the growing demand for AI-powered automation and analytics across industries.

Is Accenture Stock a Buy, Sell, or Hold?

Investors considering Accenture’s stock must weigh its strong business fundamentals against near-term policy risks. The company’s revenue growth, expanding AI capabilities, and rising profitability make it an attractive long-term investment. However, federal spending cuts introduce uncertainties that could weigh on government-related revenue streams.

Given the mixed outlook, many analysts recommend a Hold strategy for cautious investors, allowing more clarity to emerge regarding federal contract reductions. However, for long-term investors with confidence in AI-driven enterprise transformation, recent stock weakness may present a buying opportunity, especially if Accenture continues to execute well in AI, managed services, and digital consulting.

With a solid balance sheet, strong free cash flow, and disciplined capital return strategy, Accenture remains a formidable force in global technology consulting, even as it navigates near-term economic and policy uncertainties.