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Investing.com -- Baird downgraded AECOM and Jacobs to Neutral, saying AI will reshape the engineering and consulting industry but the timing and scale of its revenue impact remain unclear, leaving valuations hard to justify after years of rerating.
The brokerage said demand across the sector remains steady in the mid to high single digit range, above its long term average, and margin trends are solid.
It added that AI should lift margins in the near term, noting AECOM’s estimate that every 1 percent in labour savings adds about 20 basis points to margins.
But Baird said uncertainty over how AI will alter billable hours, headcount needs and pricing makes it difficult to underwrite further multiple expansion.
The firm said most large players are advancing AI adoption, but industry checks show no clear view on how revenue models will evolve.
With a high share of time and materials contracts, it expects some pressure on billable hours, though likely less than in other professional services fields. It said the lack of visibility has become an overhang on sentiment even as earnings remain stable.
For AECOM, Baird said its AI strategy is ahead of peers and supports the company’s margin targets through 2029.
It said the downgrade reflects valuation rather than fundamentals, and that back end revenue could face pressure if AI adoption accelerates.
For Jacobs, the brokerage cited a similar setup and added that uncertainty around a potential combination with WSP remains a risk, estimating about a 30 percent chance of a mostly stock deal.