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Globant's second-quarter numbers were in line with FactSet consensus, but third-quarter guidance was below FactSet consensus, and the company cut 2026 guidance. Shares fell 9% on Aug 14, 2026.

Why it matters: Last quarter, we saw indications that the trough of the cycle had been reached. However, this quarter revealed there is still some way to go. Business in the Middle East deteriorated, high oil prices affected travel clients, and decision cycles in North America were elongated. Globant's new artificial intelligence pods subscription model reached $53 million annual recurring revenue in June. Globant now expects a minimum of $110 million exiting 2026. Margins are higher in this business so far, indicating a potentially higher normalized margin for the company in the future. Globant completed its $125 million share buyback and authorized a new $125 million share buyback over the next six quarters. Given shares look undervalued, this should be value-accretive to shareholders.

The bottom line: We're maintaining our $61 fair value estimate for no-moat Globant. Shares continue to look undervalued. We view the current slowdown as cyclical but think the postrecovery normalized growth rate is highly uncertain due to the impact of artificial intelligence. AI has introduced considerable uncertainty about the future operating model, pricing, and pace of demand in the IT services industry. Therefore, our forecast is conservative versus Globant's historical performance.

Coming up: 2026 guidance is for revenue of $2.428 billion-$2.462 billion ($2.462 billion-$2.508 billion previously), EBIT margin of 13.5%-14.5% (14%-15% previously), and EPS of $5.75-$6.15 ($6.10-$6.50 previously), assuming 43.6 million shares. Third-quarter guidance is for revenue of $607 million-$615 million, EBIT margin of 13.5%-14.5%, and EPS of $1.43-$1.53, assuming 43.2 million shares.

Our fair value estimate is $61 per share, implying a 2026 price/earnings ratio of 10 times.

We generally expect mid-single-digit revenue growth for Globant, but in the near term, we forecast low-single-digit growth due to a challenging macroeconomic environment and delayed projects as customers contemplate their AI strategies. We expect constant-currency growth to recover to around 6% by the end of our five-year explicit forecast.

Our revenue growth forecast is based on a measured pace of market growth as customers carefully execute their IT strategies, incorporating AI. We think Globant will be able to increase average spending per client via its land-and-expand strategy, particularly with new artificial intelligence-driven opportunities. In addition, we expect a modest impact from ongoing bolt-on acquisitions.

We expect EBIT margin to climb incrementally in our explicit forecast to around 16% as selling, general, and administrative expense growth is slowed and some leverage is gained from the efficient execution of fixed-price and subscription contracts. However, we think operating leverage is minimal, which limits the possibility for material margin expansion. The shift toward outcome- or consumption-based pricing due to AI injects considerable uncertainty into what future normalized margins look like.

We assign Globant a Morningstar Economic Moat Rating of none. While we think Globant will continue to benefit from switching costs in the near term, we don't have confidence that these switching costs will remain strong enough in the future, in an artificial intelligence-driven world, to support a narrow moat. The company’s historical return on invested capital, including goodwill, has typically been 15%-20% but has steadily declined in recent years. We expect Globant’s ROIC to continue compressing toward its cost of capital.

The IT services industry is highly fragmented. According to Statista, the global IT services market has a value of around $1.1 trillion. Even the largest players like Accenture, Tata Consultancy, and Capgemini would typically only have a low-single-digit market share. Globant, with less than $2 billion in revenue, has less than 1% share. We consider Globant, EPAM Systems, and Endava to be leaders in the area of digital transformation services. These companies typically have more of a consulting role with their clients and a larger focus on engineering services to help their clients build new products and serve their own clients (that is, to generate revenue) using new technologies. Traditional IT services providers, meanwhile, are experts in legacy technologies and focus on commoditized development, integration, and maintenance engagements where cost (and cost saving) is key.

We think switching costs are based on time investment, risk aversion, mission criticality, and multiple customer touchpoints. Globant undertakes customized, highly interactive work engagements for its clients. Accordingly, the relationship typically starts small and grows over time as trust and familiarity are established. Once Globant solidifies this trust as a capable business partner and digital strategic consultant, the additional time and disruption needed for customers to be confident in an alternative provider is a significant deterrent to switching. Most companies consider digital transformation of their operations as mission-critical now. Globant asserts that 90.5% of its revenue is generated from existing clients, implying an average customer life of 10 years, which supports our narrow moat rating.

The vast majority of Globant’s clients are large enterprises, which, by their very nature, are stickier relationships given the inherent complexity of their operations and propensity for risk aversion. Globant, like its peers, typically has a land-and-expand strategy where it primarily tries to increase its business with current customers by offering them services in varying parts of their operations. This creates multiple touchpoints in a customer’s operations that lead to increased switching costs.

We think Globant differentiates itself from traditional IT services providers through its studio model strategy, whereby it organizes itself into more than 30 small units or studios that are essentially autonomous and follow an agile project management philosophy. Each studio is focused on a particular vertical or emerging technology. This enables Globant to build deep industry expertise and deliver innovative, highly customized solutions to clients in a timely manner. Furthermore, Globant generally follows a nearshoring strategy for its employee base versus offshoring. This means its employees share the same time zone and typically have a cultural affinity with the clients they serve, which fosters close client relationships, increased responsiveness, and more efficient delivery of solutions. This is why around two-thirds of its employees are based in Latin America, particularly Argentina and Colombia, to support its primarily US-based clients. We think this strategy deepens customer relationships, thereby increasing switching costs.

Globant typically contracts with its customers via a multiyear master services agreement. This agreement spells out the framework of the relationship, but generally does not include any monetary commitments to a certain amount of work. Globant’s revenue is split around 50/50 between long- and short-term projects, with long-term projects deemed to be longer than 24 months. During a work project, the chance of a client switching providers is slim to none, given the disruption that would cause. However, upon completion, the software and intellectual property are owned by the client and, in theory, Globant could be replaced by a cheaper competitor providing only a maintenance-type service. However, typically, there is always another upgrade or enhancement of the original project to be undertaken. As long as the customer is satisfied with Globant’s work, switching providers is rare, given the familiarity and trust built with Globant and the cumulative knowledge Globant has developed with the customer’s IT systems. Therefore, clients have limited motivation to switch providers due to the additional time and effort it would require to get a new provider up to speed.

Globant specializes in digital transformation services, one of the fastest-growing areas in IT services.

The company’s land-and-expand strategy is bearing fruit, as evidenced by the growing number of clients generating more than $1 million in annual revenue.

Globant’s relatively high growth rate versus peers in recent times indicates the company is gaining market share.

High growth expectations for digital transformation services are attracting new competition from big and small players.

Globant has a limited ability to increase margins, given the low operating leverage in its business model.

Globant’s revenue base is concentrated in North America and in the financial services and media and entertainment industries.