Executive Summary / Key Takeaways

• CGI Inc. (NYSE: GIB) demonstrates robust financial performance, with Q3 Fiscal 2025 revenue up 11.4% year-over-year (7% constant currency) and a strong adjusted EBIT margin of 16.3%, driven by strategic acquisitions and sustained demand in financial services and government sectors.
• The company's "Build and Buy" growth strategy, marked by recent accretive mergers like BJSS, Daugherty, and Aeyon, is expanding its market presence and deepening its expertise, particularly in high-growth metro markets and specialized sectors like defense.
• CGI's differentiated intellectual property (IP) solutions, now with 40% of IP-based revenue driven by embedded AI, and its outcome-based managed services are key competitive advantages, enabling clients to achieve significant cost savings and accelerate digital transformation.
• Despite macroeconomic uncertainties, including tariff discussions and cautious discretionary spending in some European manufacturing sectors, CGI maintains a healthy global backlog of $30.6 billion (2x annual revenue) and a growing pipeline of opportunities, particularly in AI, cybersecurity, and cloud migration.
• CGI's strong balance sheet, with $2.7 billion in readily available capital and low leverage, provides ample flexibility for continued strategic investments in its business, further accretive acquisitions, and shareholder returns, underpinning its long-term profitable growth aspirations.

The Enduring Strength of CGI: A Foundation for Digital Leadership

CGI Inc. stands as a global powerhouse in information technology and business process services, built on a foundation of client proximity, deep industry expertise, and a comprehensive end-to-end service portfolio. Since its founding in 1976, CGI has cultivated a resilient business model, strategically positioning itself as a trusted partner for complex digital transformation initiatives across critical sectors like government and financial services. This enduring strategy, encapsulated in its "Build and Buy" approach, has consistently driven profitable growth and stakeholder value, even amidst dynamic market conditions.

The company's competitive landscape is populated by formidable players such as Accenture (ACN), IBM (IBM), Capgemini (CAP), and Cognizant (CTSH). Against these rivals, CGI differentiates itself through its client-centric approach, emphasizing long-term partnerships and outcome-based delivery. While competitors like Accenture might be perceived as having a more aggressive innovation strategy, CGI's strength lies in its operational execution and sector-specific expertise, particularly in regulated industries. This allows CGI to offer highly reliable, tailored solutions that often lead to stronger client retention and pricing power in its core segments. In contrast to IBM's technology-heavy offerings, CGI's integrated approach for business process services can offer more streamlined, cost-effective outsourcing. Similarly, while Capgemini and Cognizant are strong in outsourcing and digital services, CGI's global reach combined with localized expertise provides a unique value proposition, particularly in markets requiring nuanced regulatory compliance.

Technological Edge: AI and IP as Growth Catalysts

CGI's technological differentiation is a cornerstone of its competitive moat and growth strategy. The company's core technology revolves around its extensive portfolio of Intellectual Property (IP) solutions, which serve as digital accelerators for clients, offering lower capital costs and generating recurring revenue with a higher margin profile for CGI. These IP solutions are increasingly embedding advanced capabilities, with 40% of CGI's overall IP-based revenue now driven by artificial intelligence (AI) integration.

A prime example is CGI's Momentum ERP system, one of two approved government ERP solutions, which blends commercial applications with government mission requirements, enabling agencies to achieve cost savings through new systems and automation. The company's Wealth360 platform for financial services streamlines advanced portfolio management and trading, incorporating AI functionalities to help clients achieve greater efficiencies. More recently, CGI launched SpeedOps, a new platform designed to digitize and optimize business processes for commercial and government clients. When combined with CGI's managed services and process automation initiatives like DigiOps, SpeedOps is projected to deliver sustainable double-digit efficiency improvements for clients.

CGI's significant $1 billion investment in AI, announced in fiscal 2024, underscores its commitment to technological leadership. This investment focuses on strengthening expertise, offerings, and delivery, including extensive training for its 94,000 consultants and professionals. The company is actively integrating AI and generative AI into its IP solutions and managed services, developing industry-specific use cases, and establishing AI factories. This strategic focus on AI not only enhances CGI's service delivery but also positions it as a leading expert in implementing these tools responsibly, as evidenced by its signing of the European Commission's AI Act Pledge. For investors, this technological roadmap translates into a stronger competitive position, enabling CGI to capture growing demand for AI-driven transformation, enhance client outcomes, and drive future revenue and margin expansion.

Strategic Expansion and Operational Discipline

CGI's "Build and Buy" strategy has been particularly active in fiscal 2025, significantly expanding its global footprint and service capabilities. In Q3 Fiscal 2025, the U.K. and Australia segment saw remarkable constant currency growth of 37%, largely due to the full quarter's revenue contribution from BJSS, an independent IT and software engineering consultancy acquired in Q2 2025. This acquisition was strategic for expanding CGI's presence in U.K. commercial industries like financial services and energy/utilities. Similarly, U.S. segments combined grew 9%, bolstered by the integration of Aeyon and Daugherty, which deepened CGI's digital and AI-based offerings for U.S. federal and commercial clients.

The company's operational discipline is evident in its consistent profitability. In Q3 Fiscal 2025, adjusted EBIT reached $666 million, up 10.5% year-over-year, with a margin of 16.3%. While this margin saw a slight 10 basis point decrease due to the initial impact of integrating recent mergers, management anticipates margin improvement as these acquisitions become fully integrated. For the first nine months of fiscal 2025, adjusted EBIT grew 7% to $1.9 billion, and adjusted EPS increased 8.4% to $6.18, demonstrating the accretive nature of its growth strategy.

CGI's robust cash flow generation further underpins its financial strength. In Q3 Fiscal 2025, cash from operations was $487 million, representing 11.9% of total revenue. On a trailing 12-month basis, cash from operations totaled $2.2 billion, providing substantial capital for reinvestment.

The company's capital allocation priorities remain clear: investing back into the business, pursuing accretive acquisitions, and returning value to shareholders through buybacks and dividends. With $2.7 billion in readily available capital and a low net debt-to-EBITDA ratio of 0.47, CGI possesses significant financial flexibility for future strategic moves, including potential transformational acquisitions.

Market Dynamics and Forward Outlook

The current market environment presents a mixed picture, characterized by both opportunities and challenges. CGI's global backlog stands at a healthy $30.6 billion, equivalent to two years of annual revenue, providing strong revenue visibility. Bookings in Q3 Fiscal 2025 were over $4 billion, resulting in a book-to-bill ratio of 101%, with strong performance in managed services (106%) and IP (127%). Notably, go-to-market partnerships generated over $2.6 billion in new bookings in the first nine months of fiscal 2025, a 120% increase year-over-year.

Client demand remains strong for digital transformation, modernization, data, cybersecurity, and AI. The managed services pipeline is up over 20% year-over-year across all major industry sectors, while the SI&C pipeline has also increased by more than 20% in government, space, and several commercial industries. The IP pipeline is up over 10%, driven by solutions accelerating AI-based automation, application monetization, and cloud migration. This robust pipeline signals continued growth opportunities for CGI.

However, macroeconomic uncertainty, particularly related to tariffs in Europe, continues to impact the timing of larger enterprise engagements and discretionary spending in sectors like manufacturing, retail, and distribution (MRD). While the U.S. federal government segment has seen procurement volumes and contract values below historical levels, early signs of stabilization are emerging, with sequential bookings increasing by nearly $250 million in Q3 Fiscal 2025. Management believes the company is "at the floor" of this softness and anticipates a return to momentum in a couple of quarters once tariff uncertainties subside.

CGI is proactively addressing these challenges through restructuring programs, primarily in Continental Europe, aimed at improving utilization and optimizing costs. Approximately $100 million is expected to be incurred to complete these restructuring efforts over the remainder of calendar 2025. These actions, combined with the integration of recent acquisitions, are expected to contribute to margin expansion in the medium term, with a target of achieving the company's historical 16% EBIT margin.

Conclusion

CGI Inc. continues to demonstrate its resilience and strategic prowess in a complex global IT services market. Its "Build and Buy" strategy, underpinned by a strong balance sheet and a disciplined approach to capital allocation, is effectively expanding its market reach and deepening its technological capabilities, particularly in AI and IP solutions. While macroeconomic headwinds and cautious discretionary spending persist in certain regions and sectors, CGI's robust backlog, growing pipeline, and strong performance in managed services and key industries like financial services and government position it for continued profitable growth. The company's commitment to technological differentiation through AI integration and its client-centric, outcome-based delivery model are critical competitive advantages that should enable it to capture significant opportunities in the ongoing digital transformation wave. Investors can look to CGI's proven operational excellence and strategic adaptability as key drivers of long-term value creation.