Capgemini shares plunged over 4% on Monday following a downgrade from Morgan Stanley, which cited limited growth visibility and capped valuation upside. The brokerage shifted its rating from “equal-weight” to “underweight” and lowered its price target from €145 to €142. This move comes after a recent rebound in Capgemini’s stock, driven by a return to organic growth in the third quarter and broader sector valuation improvements.

Morgan Stanley's analysts noted that while Capgemini’s organic growth has stabilized, it remains modest. They project organic growth of about 0.6% in FY25 and 2.5% in FY26, a sharp decline from earlier market expectations. The consensus for 2026 organic growth has also fallen to 2.5% from 4.5% a year ago.

The analysts point to several factors constraining growth and margins, including pricing pressure, shifting client spending priorities toward artificial intelligence, and increased investment requirements. These dynamics are expected to cap valuation multiples across the sector in 2026. Adding to the challenges, Capgemini’s decision to remove direct disclosure of organic revenue growth makes it harder for investors to assess growth trends, potentially weighing on market sentiment.

Despite the acquisition of WNS, which closed in the fourth quarter of FY25 and is expected to boost constant-currency revenue growth in FY26, analysts remain cautious. Capgemini currently trades at a premium to some European peers, a position Morgan Stanley finds difficult to justify given the current growth outlook.