Sometimes the market’s brightest opportunities are hiding in plain sight. That could be the case with CGI (TSX:GIB.A), the Montreal-based IT and business consulting giant that has quietly built itself into one of the most influential players in global technology services. While the past year has seen its share price drift lower from 52-week highs, the tech stock itself has been pushing ahead with expansion, artificial intelligence (AI) integration, and shareholder returns. These moves suggest there’s more under the surface than the current valuation reflects.
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What happened
Over the past year, CGI’s share price has slid about 12%. That might sound like trouble, but it’s worth remembering that the IT services space has seen its share of volatility as clients reassess tech budgets in an uncertain economy. The dip could be offering investors a lower entry point into a business that continues to deliver on growth, margins, and long-term contracts.
In the third quarter of fiscal 2025, CGI reported revenue of $4.1 billion, up 11.4% from last year. In constant currency, that’s 7% growth. That’s a sign that demand is strong across markets even after stripping out foreign exchange tailwinds. Adjusted earnings before interest and taxes (EBIT) climbed 10.5% to $666.1 million, keeping margins over 16%. While net earnings dipped 7.2% to $408.6 million, that decline was largely due to restructuring and acquisition-related costs, not a breakdown in core operations.
More to come
What’s driving that top-line growth is CGI’s expanding role as a trusted digital transformation partner. AI has been a standout theme, with the tech stock landing multiple wins in AI-related contracts in Q3. Management noted that CGI consultants are working hand-in-hand with clients to integrate AI into operations, improve project delivery, and uncover efficiencies –services that traditional approaches can’t match in a tech-hungry market.
CGI also continues to demonstrate strong financial discipline. Operating cash flow hit $486.6 million in the quarter, representing 11.9% of revenue, with a trailing 12-month figure of $2.2 billion. The backlog now sits at $30.6 billion, about twice annual revenue, offering a cushion of contracted work that should keep revenue flowing even in slower periods. Bookings for the quarter came in at $4.2 billion, maintaining a healthy book-to-bill ratio above 1.
Considerations
The tech stock hasn’t been shy about rewarding shareholders. In Q3, CGI returned $33.6 million via dividends and spent $286.2 million buying back shares under its Normal Course Issuer Bid. It also declared a quarterly dividend of $0.15 per share, yielding about 0.46% annually. While the yield isn’t high, the payout ratio is under 6%, leaving plenty of room for increases if management chooses to ramp up distributions.
Not everything is smooth sailing, however. Margins compressed compared to last year, partly from restructuring costs and integration expenses tied to acquisitions. The net debt-to-capitalization ratio has also climbed to 23.4% from 17.2% a year ago, reflecting the tech stock’s increased use of debt financing. While still manageable, it’s a shift worth monitoring if rates stay elevated. In addition, the tech consulting space is highly competitive, with giants also chasing the same global transformation contracts.
Foolish takeaway
Still, CGI’s combination of a strong client base, expanding AI capabilities, and a sticky backlog gives it a defensible edge. The tech stock’s local relationship model helps it win contracts and build long-term partnerships. This is not a business chasing quick wins. It’s one methodically building relationships and recurring revenue streams that can last decades.
For long-term investors, the story here is one of steady compounding rather than flashy spikes. If CGI can execute on its AI and digital transformation push while restoring margins to historical levels, the market could start pricing the tech stock more in line with its growth potential. Until then, the combination of a discounted share price, robust backlog, and proven management execution might make this one of the TSX’s quietest and most promising growth stories.
