Capgemini
Headquarters: Paris, France
Founded: 1967
Capgemini's journey began in 1967 in a modest two-room apartment in provincial Grenoble, France, thanks to the vision of Serge Kampf, a career salesman. Despite not having a background as an engineer or computing expert, Kampf astutely recognized the future need for businesses and institutions worldwide to seek guidance on emerging technologies and their practical application. Over fifty years later, this core insight remains central to the company's operations, though Capgemini has expanded significantly. It now boasts a presence in over 50 countries and employs more than 350,000 individuals globally. While its initial focus was on traditional IT and organizational consulting, Capgemini today offers a comprehensive suite of services, encompassing digital transformation, cloud infrastructure, software development, and engineering services. This broad portfolio enables the company to provide clients with end-to-end solutions, from initial strategic planning to final technical implementation. The company's operations are structured around three core areas: Strategy & Transformation, Applications & Technology, and Operations & Engineering. This diversified approach provides Capgemini with exposure across a wide range of sectors. However, its particular strength lies in application services, which includes critical areas such as systems integration, software engineering, and enterprise application management.
“This broad portfolio enables the company to provide clients with end-to-end solutions, from initial strategic planning to final technical implementation. ”
Looking ahead, the development of generative AI applications across various industries presents a significant long-term tailwind for the company. In the final quarter of 2024, Capgemini reported that 5% of its bookings were related to generative AI, a notable increase from approximately 2% earlier in the year. For the full year, AI-related bookings accounted for around 4% of the total. This clearly indicates a growing area of focus, and management anticipates a substantial increase in demand over time as enterprises transition from initial exploration to practical implementation. Generative AI is considered a truly transformative technology with the potential to revolutionize every industry globally, akin to the impact of the first industrial revolution. As a large, well-established technology consulting firm, Capgemini is, in our view, exceptionally well-positioned to serve as industry's key technology partner in realizing the benefits of AI for businesses worldwide. Capgemini’s global delivery model allows it to efficiently serve multinational clients through a strategic blend of onshore and offshore resources. The company has a particularly extensive delivery presence in India, which supports its margins and provides pricing flexibility. As more clients engage Capgemini across different geographies and service lines, the value of its integrated delivery model is amplified, fostering stronger client retention and facilitating effective cross-selling. This combination of scale and deep client integration contributes to consistently strong mid-teens returns on capital.
“Capgemini is, in our view, exceptionally well-positioned to serve as industry’s key technology partner in realizing the benefits of AI for businesses worldwide. ”
Another compelling aspect of Capgemini’s business is its strong cash generation. In 2024, the company generated over EUR 2 billion in organic free cash flow, comfortably covering its investment needs and enabling significant shareholder distributions through dividends and share buybacks. Its asset-light business model, coupled with a relatively predictable revenue stream, allows Capgemini to convert a high proportion of its accounting profit into free cash flow. However, the past year or two have seen a deceleration in Capgemini’s business growth. The company reported a 2% revenue decline in 2024, reflecting a broader slowdown in client spending and decision-making delays. These pressures were most pronounced in Europe, particularly France, and within the manufacturing sector—both areas where Capgemini has historically had a strong presence. Manufacturing clients have been reducing their investment in transformation programs amid broader economic uncertainty, and European clients, in general, have adopted a more cautious approach.
While this has dampened recent growth, there is reason to believe that these areas could transition from headwinds to tailwinds in the future. A structural shift towards reindustrialization, especially in continental Europe, may drive increased demand for digital supply chain transformation, smart factory initiatives, and cloud modernization—all areas where Capgemini possesses relevant and robust capabilities. Overall, Capgemini presents a stable and cash-generative business model with significant potential to capitalize on medium-term growth trends such as the proliferation of AI, continued digitalization across industries, and the evolving industrial landscape in Europe. While the near-term outlook is tempered by macroeconomic uncertainty and softer spending in key sectors, the company's structural positioning is strong, poised to benefit from a broader expansion of digital investment across various industries.
