By Matteo Allievi and Victor Goury-Laffont

(Reuters) – French IT consulting group Capgemini on Thursday reported weaker revenue growth in the first quarter of 2023, compared with the year-ago period, citing a tense economic environment with clients adopting a “wait-and-watch stance”.

Still, the company’s quarterly revenue reached 5.73 billion euros ($6.35 billion), 10.9% above the first three months in 2022.

Cloud services for years have been one of the largest sources of growth for some of the biggest tech companies, but investors are now looking to see whether there is a glut in capacity that will lead to investment cuts as companies deal with rising costs amid soaring inflation, while interest rate hikes have squeezed consumer demand.

The sector downturn forced tech giants including Alphabet, Microsoft, Meta and Amazon to slash jobs.

Capgemini, which offers consulting, digital, technical and engineering services, in February announced plans to ease hiring after growing its workforce by 11% in 2022, pointing to the sluggish demand for artificial intelligence, data and cloud services.

At the end of March, the pace of expansion had dropped to 5% year-on-year with a headcount of 357,000 workers.

“We will start recruiting again later this year to achieve our growth targets”, Capgemini’s CEO Aiman Ezzat told reporters.

The Paris-based company reiterated its outlook for 2023, pointing to revenue growth in a range between 4% and 7% in constant currency terms, down from a 21.1% increase in 2022, and an operating margin between 13.0% and 13.2%.

“The economic context remains tense (…) It’s all about postponements, but our clients’ agenda hasn’t changed, digital transformation remains their priority”, Ezzat added.

Growth in new hires remains strong in tech products, the CEO specified, including research on generative AI.

Late last month, German competitor SAP announced plans to embed OpenAI’s chatbot ChatGPT into its products.

Capgemini remains more cautious on AI development, with Ezzat stating that “when adopting a new technology, it takes times to find the specific ways of using it to generate high margins”.

($1 = 0.9024 euros)

(This story has been refiled to fix story formatting)

(Reporting by Matteo Allievi and Victor Goury-Laffont in Gdansk; Editing by Muralikumar Anantharaman, Sherry Jacob-Phillips and Kim Coghill)

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