IT Consulting is Not Having a Good Time

Summary

Motley Fool Hidden Gems Investing

Episode Title: IT Consulting is Not Having a Good Time
Date: June 18, 2026
Host: Tyler Crowe
Guests: Matt Frankel, John Quast

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Episode Overview

This episode dives into two central themes:

• The overlooked threats posed by climate change to data centers, particularly relating to AI infrastructure
• The persistent decline in the IT consulting and services industry, illustrated by Accenture’s disappointing performance and a broader industry malaise

The episode concludes with a special message urging listeners to act on an SEC proposal that could reduce the frequency of required financial disclosure by public companies.

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Key Discussion Points & Insights

1. The Hidden Climate Risk in Data Centers

(00:03 – 08:16)

Climate Hazards Underestimated

• Matt Frankel highlights a First Street study analyzing 97 global data center markets.
  • Nearly 90% of current data center capacity faces elevated climate risks (flooding, windstorms, wildfires).
  • Most insurance underwriting still uses outdated historical data, failing to account for today’s climate realities.

  “By 2030, more than half of data center hubs are going to find their water supplies stressed due to their cooling demand.” (Matt Frankel, 01:52)

Investment Perspective

• Data centers are long-lived, expensive projects—some, like Meta’s Hyperion in Louisiana, reach the $200 billion mark.
• The complexity of insuring or retrofitting such assets as climate risks grow was stressed.

Actionability of the Report

• John Quast argues the report is “a 1 out of 10” in isolation for immediate investment action, since the sector is already aware and responding.

  • Main takeaway: Constraints (including land, power, semiconductors) are mounting, not just from climate.
  • Notable quote:

    “There are many constraints... I think there’s a place in your portfolio to think about smart use of limited resources.” (John Quast, 05:21)

• Matt Frankel concurs, placing actionability at “about a 5”—climate concerns add to an existing investible trend (e.g., cooling).

  • Names Vertiv (VRT) as a leader in data center cooling and management systems.

• Tyler Crowe raises the insurance challenge for mega facilities:

  “How the heck does a single insurance company insure a $200 billion building for something like flood insurance or hurricane insurance?” (Tyler Crowe, 07:06)

  • Indicates a looming systemic insurance and risk management problem.

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2. The IT Consulting & Services Slide

(09:12 – 17:41)

Accenture as an Industry Canary

• Accenture’s shares dropped 17% after mixed but not catastrophic earnings; revenue was up, guidance cut slightly.
  • Matt Frankel:

    “No more surefire way to make a stock go down than to lower your guidance.” (Matt Frankel, 10:08)

  • Over the past decade, Accenture’s total returns are underwhelming—32% up after a major drop, with peers faring even worse.

Broader Industry Challenges

• John Quast:

  “The IT space is completely uninvestable right now. It’s a no go. It’s just a space that’s going to be full of losers, I think.” (John Quast, 12:41)

  • Sees structural decline driven by AI replacing much of the personalized human input that consultancies formerly provided.
  • Cites Tim Ferriss’s 80% drop in self-help book sales as emblematic of AI’s disruption.

• Matt Frankel:

  • Suggests that if you’re optimistic, Accenture could be a value, offering a 4% dividend and strong free cash flow—but he’s not buying.
  • IBM is his preferred play: diversified, strong in AI and quantum computing, reducing reliance on traditional consulting revenue.

    “IBM is the way I would play the space right now, and I have, but I wouldn’t be buying Accenture or any of the other pure plays.” (Matt Frankel, 15:47)

• John Quast:

  • Warns that Accenture’s push into cybersecurity (acquisitions totaling over $4 billion, often of unprofitable businesses at high multiples) might erode earnings further.

    “…when you’re looking at those backward-looking metrics, it might not be quite the value that it seems to be.” (John Quast, 16:34)

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3. Special Segment: SEC Proposal on Reporting Frequency

(19:32 – End)

Host’s Advocacy

• Tyler Crowe addresses SEC’s plan to halve required company disclosures from quarterly to twice a year.

• Core argument: This move widens the information gap between institutional and retail investors, undermining “ownership” by individuals.

  “You cut that to twice a year and you doubled the information gap between insiders and the rest of us.” (Tyler Crowe, 20:17)

• Example: The UK’s similar past experiment did not change corporate behavior, but did reduce information for individual investors.

Call to Action

• Urges listeners to submit public comments before the July 6th deadline:
  • Visit fool.com/savethe10Q to read the full breakdown and act.
  • “This is your market. This is your business. We want you to make your voice heard.” (Tyler Crowe, 21:15)

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Notable Quotes & Memorable Moments

• Matt Frankel (01:52):

  “By 2030, more than half of data center hubs are going to find their water supplies stressed due to their cooling demand…”

• John Quast (05:21):

  “There are many constraints. I think there’s a place in your portfolio to think about smart use of limited resources.”

• Tyler Crowe (07:06):

  "How the heck does a single insurance company insure a $200 billion building for flood insurance or hurricane insurance?”

• John Quast (12:41):

  “The IT space is completely uninvestable right now... There are so many landmines out there.”

• Matt Frankel (15:47):

  “IBM is the way I would play the space right now... I wouldn't be buying Accenture or any of the other pure plays.”

• Tyler Crowe (20:17):

  “You cut that to twice a year and you doubled the information gap between insiders and the rest of us.”

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Timestamps for Important Segments

• Data center climate risk discussion: 00:03 – 08:16
• IT consultancy and services decline: 09:12 – 17:41
• Special segment on SEC disclosure proposal: 19:32 – end

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Summary & Takeaways

• Climate risk is a mounting but not new threat for data centers; investment opportunities lie in infrastructure and resource-management companies.
• The IT consulting/services sector is broadly in decline, battered by valuation compressions and existential threats from AI. Diversified technology players (e.g., IBM) are safer plays than pure consultancies (e.g., Accenture).
• Investors are encouraged to act on regulatory changes (SEC proposal) that may disadvantage individuals by reducing transparency.
• Action points: Consider infrastructure-adjacent plays (Vertiv, Badger Meter), be wary of IT consulting pure-plays, and speak up against reduced reporting requirements.

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For more insights and direct action links, visit fool.com/savethe10Q.

Transcript

[A]

The SaaS apocalypse was the wrong apocalypse. Today on motley fool hidden gems investing. Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe. And today I'm joined by longtime fool contributors Matt Frankel and John Quast. So we're going to get into the kind of decline, I guess, if you will, of the IT services consulting industry over the past couple of years based on Accenture's earnings that were released earlier today. And we're also going to do something a little bit different. It's a special message from Motley fool at the end here. But we're going to start today with a recent report on how climate could be a much bigger factor for data centers than originally thought. Now Matt, you originally brought this idea to the table with us. So what was the market missing about data centers that this report was bringing out?

[B]

Yeah, so it was a study by First street that was released today. It analyzed 97 different data center markets around the world. So the headline is that nearly 90% of our global data center capacity today, not what's being built, is at an elevated risk from climate related hazards. Think flooding, think windstorms, wildfires. So most underwriting, when you're buying insurance for real estate, it still uses historical data which isn't doing a good job of predicting how climate events perform today. I know John lives in Florida. This is why a lot of insurers have exited Florida, because the past looking data isn't doing a good job. So data centers are generally expected to operate for 20 to 30 years. So this could become a big problem, especially as we rely more heavily on data centers for all of our AI infrastructure needs. So some of the most exposed markets are international, like Asia Pacific is the worst. But Northern Virginia, which we would call the data center capital of the United States, has an above average level of exposure here. So here's the key takeaway. And this is confirmed by separate research, not just this study. So by 2030, more than half of data center hubs are going to find their water supplies stressed due to their cooling demand. Data centers produce a lot of heat. They actually create what are known as heat islands by warming the land around them by as much as 16 degrees in documented cases. Now, all of this can be mitigated, at least on the building level. You could build buildings to be flood resistant on something that you see all the time in Florida. You can see power sources being upgraded, you can see cooling systems, but the stress on the supporting infrastructure, the power grids, the roads, the water supply in the, in the local area. It's a real problem that's being overlooked.

[A]

This is definitely a topic that's been bubbling up from time to time and kind of manifesting in various ways and also not mentioned like in their report, and I think we all hinting at it too is that data centers are really expensive. And so the, like the cost of these and getting them right makes a lot of sense, you know, saying flood resistant buildings and whatnot. But I'm thinking of like Meta's Hyperion data center which is being built in like northeast Louisiana, that's expected to be a $200 billion facility. And so you know, if you have to insure a, you know, a warehouse that's maybe a few million dollars, that's one thing. But $200 billion insurance or like trying to mitigate that risk when you're doing construction is a big deal because over the next 20, 30 years, who knows what's going to happen. So I have a two part question for you both. Is there a specific part of the market within this AI infrastructure data center build out that you see this report actually impacting? And then on a scale of 1 to 10, 10 being like the most actionable, how actionable is this to investing in that specific market?

[C]

Well, let me just start with the 1 to 10 scale. In isolation, I would say this report from First street is actionably a 1. You know, I, I don't want to say that there's nothing wrong here with the climate whatsoever or anything wrong with the study, but let's be clear. First watch, it's on a mission to connect climate and financial risks together. That's the why it exists as a, as a research firm. So it doesn't surprise me that it's sounding the alarm a little bit here on preparedness for climate risk. And some of the key constituents here would actually push back, including some of those who are building the data centers saying we're very aware of the climate risks and we're already taking measures to counter those risks. So I don't think that there's anything really new here personally from the first street report. Now that said, I mean there is a huge build out trend and there are lots of constraints that we're running up against. And it's not just climate related. I mean you look at just the land issue that it takes. We need more data centers for AI, or at least they want to build more data centers for AI. Guess what, a lot of people are becoming increasingly uncomfortable with the land in their city, in their county being used for that purpose, right? Or wrong. That is the perception that's growing. Power is also something that's coming up against the wall. Even chips. I think this is an interesting one there, there's some. As far as how much compute we want to put in these data centers, is Taiwan Semiconductor even capable of churning out that many right now? Elon Musk would say no, which is why he's investing in the tariff app. Right. And we need more. And there's no player out there that can supply everything that we need. So there are many constraints as far as actionability when it comes to that. I would say it's more of like a five. Yeah, there are a lot of constraints that are worth thinking about. I, I think that there's a, a place in your portfolio to think about smart use of limited resources. So in my portfolio, for example, I have Badger Meter. This is for water management. That, that for to me just makes sense. We need to be smarter with our water and you can do that with the products and services that Badger Meter supplies. I can see a case for Itron, which is more power management, stuff like that. But then man, I also think about if we do run up against some, some walls here in the, in the build out that is kind of an issue because there are some stretch valuations in the stock market. A slowdown in the build out could impact those things. So just some things to keep an eye on.

[B]

Yeah. So I would say the cooling solutions for data centers in particular are an excellent opportunity to invest in this right here. So Vertiv ticker symbol is vrt. That's one of the most direct ways you can invest in this. They make power management systems, thermal management systems and LI cooling systems, all for data centers. It's already been one of the best performing AI infrastructure stocks in recent years. But the massive cooling needs, especially as you know from the climate related issues, are not totally priced in yet. So I'm also at a five or so when it comes to actionability. And the reason is because the need for data center cooling was already an investable trend. This is not new because of a climate study. This is why stocks like Vertiv have performed so well. This certainly adds to the bull thesis, which is why I kind of split the difference with a 5.

[A]

I'm perplexed by this one too, because when my immediate thought, when I saw this was to that point about meta and it's 200 billion billion with a B facility, I started thinking about insurance. Because how the heck does a single insurance company insure a $200 billion building for something like flood insurance or hurricane insurance. From an actionability standpoint, I can see this being a huge risk and almost to my thing it's like a six or seven. But it's really hard for me to figure out specifically where that risk is located. I'm not looking at like Berkshire Hathaway's Geico doing auto and homeowner insurance is that's going to be, you know, an essential or existential risk for somebody like that. But there is somewhere along the chain of insurance that is going to be tied to these massive data center build out, probably somewhere in the excess and surplus industry. I don't know where it is, but I definitely want to go digging and find out. Coming up after the break, we're going to talk about IT consultancies and why they're doing so lousy lately.

[D]

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[A]

Now we talked a little bit about the SaaS apocalypse where AI is going to eat anything software and maybe some of that's a little overblown. Maybe some are going to do well, some are going to fail. But one place that I think is getting not nearly as much conversation related to the doom and gloom is the IT consultancy and IT services industry, because this is an industry that's hurting even worse. And just as an example, shares of Accenture are down about 17% today as we're taping after the company reported its fiscal third quarter results. It was a story that we heard quite a bit. Numbers for the quarter look relatively fine, but it's the things that didn't really get said that had everyone worried. That's what I Think we saw, right Matt?

[B]

Yeah, I mean, as you said, the numbers look fine and that's a good word for it. Revenue was up 6% year over year, basically in line with estimates. Earnings were up 9%, slightly beat estimates. Operating margins showed a pretty solid improvement. And to be fair, management's showing really good cost discipline. That's why margins are growing. That's why earnings are growing faster than revenue. But revenue guidance was narrowed to 3 to 4% for the full year from previous range of 3 to 5%. So slightly low. There's no more surefire way to make a stock go down than to lower your guidance. Earnings growth is supposed to be about 10 to 11% for the year. It's fine, but nothing to get excited about. The guidance, like I said, is the biggest drag on the stock. 3 to 4% earnings growth, quite frankly, doesn't justify much more than the 13 times earnings it's trading at after this drop.

[A]

Yeah, the salespocalyx has been a topic that's often covered in financial media, Ed. Certainly we've dipped our toes into it from time to time. It makes for pretty good chatter. And at the same time there's a lot of people who have stocks in the SaaS apocalypse kind of trade that have not done so well recently. Now a thesis. That's a thesis has kind of had mixed results so far. What we haven't probably spent enough time is on this IT consultancy apocalypse. Over the past decade, shares of Accenture are up a meager 32% and that's after a probably almost a 50% drop from other highs. And Accenture is one of the best performing IT consultancies over that time. You look at companies like Globent or EXL Services, these are all companies that are doing far worse. And it's really impacting not just like any single company, but anybody who's invested in this industry is really hurting.

[B]

Yeah. And I mean Tyler, we've sold some of those in our hidden gem services throughout the fool. And for that reason because it's, it's an undercovered story, but it is really hurting lately. And I mean on the other side of it, we've added some stocks that have IT consultancy businesses but do a lot of other things that are getting ahead of the AI curve. I'm going to mention one of those in just a minute, but we've been seeing this for a while now.

[A]

Yeah, and this is, I feel like a quandary for most investors because so far the financial numbers for all of these mentioned IT services companies, they're still okay, Revenue still growing. It's not as good as it was, but I wouldn't say like 5 alarm fire sort of things. And a lot of the stock decline has been basically drastic changes in March market sentiment and stock valuation resets. So I want to get both of your opinions on this one. And John, I'm going to go to you first. At these valuations, deeply depressed stock prices. Is there a company in this industry that's worth considering or based on what you've seen from AI and some of the threats we've seen recently, is this just like a no go area until they can figure out how to compete or build businesses that are more complementary to AI?

[C]

Yeah, for me, the IT space is completely uninvestable right now. It's a no go now that said, I mean it's just, it's just a space that's going to be full of losers, I think. Now not to say there's not going to be any winners in the space, but I just prefer to avoid the entire space because there are so many landmines out there. You mentioned that the numbers are still okay. And that is a good point point. But the, the counterpoint to that is we do want to sell our businesses before the numbers turn bad. Right. And so if we have a reasonable suspicion that the numbers could turn negative in the future, then we kind of want to get out in front of that before it actually manifests. Because at that point the stock is probably going to be even down more than it is right now. As we look out in the IT space. I do think that this, this kind of a business gets tougher the further I look out. And there's reasons for this. I do think that personalized advice from a human person is a dying art form. And for better or for worse, I would personally say probably a little bit more towards the worst. But it is being replaced by AI. This personalized input into your business, into your life. AI is doing that more and more than a human. I think you could make the argument that ChatGPT is already the world's largest mental health services provider. We could say you shouldn't be going to ChatGPT for mental health assistance. Maybe that's right. But people are, and that's the point here. And think about somebody like Tim Ferriss recently coming out. This is the author of the Four Hour Work Week recently coming out and saying that his sales are in 2026 are trending 80% lower than in 2022 based on the data he has so far. And that is a very steep 50 or greater than 50% drop off this year in his sales compared to last year. And last year was another huge drop off. So increasingly you're seeing some where somebody would have gone to a book like that before and said, how can I personalize this for me now? Just going straight to the AI and saying, how can you personalize this concept for me and it does it for you. And we kind of have this sense that AI knows me better, that it can personalize it better, that it can. We can even guide it to tell us a little bit what we want. And I think that that's what we're all looking for, whether we like to admit it or not. Whereas a person might not might tell you something you don't want to hear. So we are doing this more and more. I think the business space is happening more and more that way. Businesses were maybe going to Accenture to get advice on how to implement AI and now you can really just ask AI how to implement itself.

[B]

Yeah. So I mean if you believe that Accenture's revenue is going to stabilize at that 3% to 5% long term growth rate, it could be a solid value here. I mean you'll get a nearly 4% dividend yield while you wait. The business produces over $10 billion of free cash flow a year and you're getting it at a low double digit earnings multiple. So I'm not buying it, but there could be value there. One that is on my radar, and it's the most recent position I bought in my portfolio is IBM. They have an IT consulting business that they consider kind of their legacy business. It's been under pressure just like Accentures, but they also have their infrastructure business, their mainstream business or mainframe business, their software business. And there are several areas of their business, including those where AI adoption is actually a major tailwind. So whenever you have an industry that's in the midst of disruption and uncertainty, I like to look for companies that do a lot of other things well too. The recent Confluent acquisition, it certainly moves IBM further from relying on their legacy revenue streams. Management is also doing a great, great job of being on the forefront of new trends. I can't name a publicly traded company that's further, further along in quantum computing, just to name one example. So IBM is the way I would play the space right now, and I have, but I wouldn't be buying Accenture or any of the other pure plays.

[C]

To circle back what Matt was saying about Accenture possibly being a value here, or at least laying out that it does make a little bit of sense from a value perspective. And if you're in that camp, just keep in mind a few things. With Accenture announcing over 4 billion in cybersecurity acquisitions today. And the acquired businesses don't earn a profit. So when you think about the future earnings of Accenture, they're going to come down more than likely, at least temporarily. While these things scale, also the acquisitions that made at 20 times enterprise value to annual recurring revenue, that's not exactly cheap. So the perceived value with Accenture, just be careful when you're looking at those backward looking metrics and it might not be quite the value that it seems to be. And the acquisitions that it's making kind of aggressively are what is going to cause the future value.

[A]

Well, certainly the outlook for these is probably one of the less certain times we've seen in the IT consulting services. So we're going to do something a little bit differently in the next segment and it's actually just going to be me. So I want to say thank you to John and Matt before we go off to the break. We'll talk to you guys this time next week.

[D]

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[A]

hey fools, it's just me for this last segment because we the Motley fool, want to take a moment to talk about something important happening right now that infects every individual investor. The SEC is proposing to allow public companies to cut their financial reporting in half from four times a year to twice a year. The stated goal is to reduce short termism, short term thinking in corporate America. And we do. We think that's a noble goal. But this isn't the fix that we're looking for. Here's the thing. When you own a stock, you're a part owner of that business. Management works for you. Quarterly reports are your regular look inside the business. You own the financials, the trends. Management's own account of what's happening and why. Institutional investors and big Wall street firms can get this in so many ways and spend millions of dollars and have armies of analysts to figure this stuff out. We as individual investors don't have those resources. We have quarterly reports. You cut that to twice a year and you doubled the information gap between insiders and the rest of us. And the research backs this up. When the UK tried something similar, corporate investment behavior didn't change at all. The only thing that changed was how much information individual investors had to work with. 26 years ago, the Motley fool community helped pass regulation Fair Disclosure by flooding the SEC with comment letters. It was pivotal in leveling the playing field between Wall street and individual investors. We can do it again. The public comment window for this proposal closes on July 6th. You can head to fool.com save the 10Q to read our full breakdown and submit your comment. The link for this special request is also going to be in the show Notes. It takes five minutes and it matters. This is your market. This is your business. We want you to make your voice heard. That's all the time we have for today. I'm going to hit disclosure and I'm going to get out of here just by myself. As always, people on the program may have interest in the stocks they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provide for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks to producer Bart Shannon and the rest of the Motley Coal team for Matt, John and myself. Thanks for listening and we'll chat again.