Rod Bourgeois, Managing PartnerAfter assessing the top independent equity research firms, we chose to feature DeepDive Equity Research in our cover article due to its pioneering business model, its unique approach to researching tech stocks, and its track record of value-creating predictions praised by professional investors.
DeepDive’s Purpose
Building on acclaim as the as the #1-ranked stock analyst in the IT services sector for eight straight years, Rod Bourgeois launched DeepDive Equity Research in 2014 and serves as the firm’s Managing Partner. His goal in forming DeepDive was to better help tech investors by doubling down on efforts to conduct research not being done elsewhere on Wall Street while eliminating time spent on marketing activities.
Bourgeois explains: “I enjoy doing research that hasn’t been done before and sharing the findings with the most-informed investors who ask the toughest questions. I started DeepDive to make those activities the chief focus in serving an intentionally limited set of clients.”
Achieving “Gold Standard” Research Credentials
To better understand Bourgeois’ distinction as a top stock analyst and why clients pay a premium to access DeepDive’s research, we combed through a decade’s worth of Wall Street analyst rankings material and gathered feedback from some admirers of Bourgeois’ work.
Institutional Investor’s annual ranking of stock analysts (i.e., based on an extensive annual survey of professional money managers) elucidates Bourgeois’ consistent record of standing out from the pack. Professional investors have called Bourgeois: “the analyst’s analyst” (2013), “the gold standard in the sector” (2010), “a stellar performer” in reference to stock picking (2009), and “the deepest analyst and essential reading” (2006).
Among an abundance of investor quotes applauding Bourgeois’ research, we found several that fit the ethos of DeepDive, including: “He digs deeper into companies and industries than other analysts” (2010); “He does incredibly in-depth research” (2009).
Bourgeois insists the credit for this success should go to his network of industry relationships. In particular, DeepDive has an ongoing collaboration with Everest Group, a market research firm that Bourgeois extols for its “unmatched, bottom-up knowledge of the IT services industry.” Bourgeois also salutes Everest Group’s CEO, Peter Bendor-Samuel: “He is a luminary in the IT services industry, and for 20 years I’ve learned a ton from Peter through our dialogue and debates about the industry’s future fundamentals.”
We queried Bourgeois for further explanation of achieving perennial #1 analyst stature. He simply said, “I just do research that no one else is crazy enough to do.”
Our take is that DeepDive’s success is rooted in a genuine passion for producing forward-looking research combined with very experienced pattern recognition, afforded by Bourgeois’ 23 years covering IT services stocks and 8 years working as a strategy consultant.
A Pioneering Business Model
DeepDive’s launch in 2014 occurred during a period when other stock research firms, including Fundstrat and MoffettNathanson, were also in startup mode.
In light of Wall Street’s history of relying on stock research produced by organizations attached to investment banks, the offerings of these new and independent research firms have been welcomed by many investors.
John Bai, co-founder and Managing Partner of FundStrat, sought inputs from Bourgeois during the early days of launching his firm. Bai recalls Bourgeois asserting, “You must deliver clearly differentiated research content on the issues that matter for stocks; if you do this, sales will follow.”
This recollection by Bai is quite fitting as it reflects a unique attribute that underlies DeepDive’s business model. The firm has no sales staff and does not spend time on marketing. All of DeepDive’s sales stem organically from its reputation for valuable research content.
I enjoy doing research that hasn’t been done before and sharing the findings with the most-informed investors who ask the toughest questions
DeepDive is praised for producing research findings geared to both investors and traders. One money manager emphasizes, “He [Bourgeois] is uniquely insightful with regard to near-term stock tactics as well as long-term industry structure and competitive dynamics.”
Such praise is attributable to Bourgeois’ track record of making value-creating predictions across a range of time horizons.
For example, since the early 2000s, Bourgeois has refuted skepticism about the sustainability of the offshoring trend and Indian IT services businesses. He has long contended that Indian IT firms—e.g., Cognizant, Infosys, TCS—would be winners in the long haul. Why? He says it’s substantially due to the US’ increasing reliance on India’s vast IT talent pool, which in turn creates ongoing opportunities for Indian IT firms to move up the food chain in serving US and European companies. On a related factor, Bourgeois’ studies of offshore service economics have effectively repudiated a common assumption that offshore labor arbitrage benefits are prone to shrink rapidly.
In 2005, Bourgeois published a series of reports heralding that “Accenture needs an offshore wake-up call” and arguing that Accenture should proactively embrace and much more aggressively invest in Indian labor capacity. He further argued that the offshoring trend would prove to be a significant net positive for Accenture—an argument that was initially met with substantial pushback. Ultimately, to management’s credit, Accenture pivoted and decided to invest aggressively to build up its offshore labor capability. The offshoring trend has since been a root driver of strong growth not only for Indian IT firms but also for Accenture.
Further, in a 2012 Bloomberg TV interview, Bourgeois proclaimed, “there is no one in as strong of a position as Accenture for the business process transformation wave of spending that we’re going to see.”
How have these predictions played out? They’ve been stellar.
Offshore IT labor usage is alive and well, and Indian IT firms have been winners, achieving impressive scale in the IT services industry.
Recent Findings about Tech Sector
DeepDive’s research process is organized to study cyclical and secular demand trends and forecast inflection points in IT services industry growth rates and margins. To produce its forecasts and determine stock implications, DeepDive draws on proprietary data, channel checks, market studies, and pattern recognition from historical analyses.
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Bourgeois is uniquely insightful with regard to near-term stock tactics as well as long-term industry structure and competitive dynamics
But entering 2023, despite its “secularly-positive” (or long-term positive) stance on the IT services industry, the firm articulated a “cyclically cautious” view by emphasizing risks to discretionary IT spending and forecasting a significant industry growth slowdown. This caution proved to be warranted. Industry bellwethers Accenture (ACN) and Infosys (INFY) both substantially cut their fiscal-year growth outlooks and disappointed their investors when they reported in June and July of 2023, respectively. These disappointing reports aligned with the warnings published by DeepDive in advance.
Upcoming Research to Further Address Crosscurrents
What’s next on the research agenda? DeepDive is currently studying several questions that Bourgeois dubs as key ‘controversies’ for tech investors:
• Is the cyclical slowdown in discretionary IT spending largely over?
• How are pricing power and contractual risks changing on IT services deals?
• How will generative AI impact IT services labor and overall industry demand?
• Which stocks will emerge as AI winners and losers?
There’s certainly value in knowing the answers. So, unsurprisingly, the crosscurrents of cyclical risks and AI-induced changes are upping the demands for DeepDive’s services.
Fundstrat’s John Bai shared perspective on what it takes to serve investors successfully, especially amidst such crosscurrents: “You must be top three in your area of research coverage, and he [Bourgeois] has a huge advantage, having achieved #1 analyst status for such a long time. Also, DeepDive, as the name conveys, carries out deeply-researched work for some of the most sophisticated investors, and it’s clear that Rod is a reliable partner to his clients.”
