Investing.com -- Morgan Stanley downgraded Accenture to Equal-weight from Overweight and slashed its price target to $177 from $240, arguing that the anticipated boost to IT services spending from artificial intelligence investments has yet to materialize as enterprises continue to prioritize AI projects over traditional discretionary technology spending.

The brokerage said its bullish thesis had been based on expectations that AI spending would begin to rationalize in 2026, freeing up budget for broader digital transformation initiatives and benefiting consulting and services firms. Instead, recent checks and Morgan Stanley’s first-quarter CIO survey indicate IT services budgets are expected to grow only about 2% in 2026, while overall IT budget growth remains largely unchanged at 3.7%, suggesting AI investments are crowding out other spending rather than expanding total budgets.

Morgan Stanley also warned that Accenture’s upcoming quarterly bookings could come under pressure, with growth potentially falling below consensus expectations. Analysts said bookings face tougher comparisons as the benefit from a shift toward longer-duration managed services contracts fades, while acquisition-driven growth may become harder to sustain amid rising valuations and longer deal timelines.

The bank noted that mergers and acquisitions remain strategically important as IT services firms race to build AI capabilities, but the economics are becoming more challenging. Accenture recently increased its ventures and acquisitions target for fiscal 2026 and has completed several AI-focused acquisitions, though investors have grown increasingly concerned about higher acquisition costs and less certain returns from AI-related assets.

Morgan Stanley said concerns have also emerged around growing competition from AI model providers that are expanding their own deployment and engineering teams. However, the firm believes large enterprises pursuing multi-model AI strategies will continue to require consulting partners capable of managing complex, company-specific implementations, preserving a role for Accenture despite evolving industry dynamics.

The brokerage lowered its fiscal 2027 revenue growth forecast and reduced its valuation multiple to 12 times projected earnings from 16 times previously. While it continues to view Accenture as a high-quality company with strong enterprise relationships and exposure to major transformation projects, Morgan Stanley said the timing of a meaningful recovery in discretionary technology spending remains increasingly uncertain.