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Amdocs (DOX) edged past Q4 EPS expectations and delivered in-line revenue of $1.15 bln, but the stock is trading sharply lower following the earnings release. That weakness is largely tied to the company's disappointing EPS guidance for 1Q26 ($1.73-$1.79) and FY26 ($7.27-$7.55), both of which missed analysts' expectations.

• The downside EPS guidance is related to DOX's plan to accelerate its generative AI investments in order to open new pathways for future growth. The company stated it is also monitoring for impacts from the uncertain global macroeconomic environment.
• Generative AI investments will focus on developing a “Cognitive Core” platform -- an advanced agentic layer that integrates agent-to-agent capabilities into core BSS/OSS systems, promising new automation, improved agility, and cost efficiencies for telecom customers.

Despite the conservative guidance, DOX posted a flurry of positives:

• Cloud-related activities grew double digits and accounted for over 30% of total revenue, 12-month backlog increased 3% yr/yr to $4.19 bln, and the company ended FY25 with robust sales momentum and a healthy book of business.
• Non-GAAP operating margin expanded by 290 bps to a record 21.6% as phase-out of non-core, low-margin businesses improved overall profitability.
• The quarterly cash dividend was hiked by 8% to $0.569/share, supporting total shareholder return. Free cash flow remained strong, with a 90% conversion rate and healthy capital allocation, including significant share repurchases.
• New wins included a multi-year strategic expansion with PLDT, Google Cloud migration awards at TELUS and Lumen Technologies, and a digital transformation/IT operations agreement with Fidium, while managed services revenue reached a record 66% of annual total.

Briefing.com Analyst Insight:

DOX delivered a solid finish to FY25, maintaining its leadership in managed services and cloud transformation. However, the tempered FY26 EPS outlook and intentional AI spending shift reflect a pivot toward "future growth engines" at the expense of near-term earnings momentum. Investments in Cognitive Core generative AI are ambitious and could position DOX for a new growth wave, but the timing and scale of monetization remain to be proven. Positive backlog trends and margin improvements help buffer investor concerns, though caution around macro and client spending is warranted. With FY26 guidance implying modest growth and margin accretion balanced against elevated R&D, more evidence of AI-driven operational disruption may be needed before the market assigns a premium multiple.