Everyone's watching Nvidia right now. Here's why I'm excited. (From Timothy Sykes) |
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Key Points |
Pegasystems shares roared after the company released Q2 earnings on July 22. The company's GenAI Blueprint tool is generating huge interest from customers. With agentic artificial intelligence on the rise, Pegasystems is strongly positioned for future growth.
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For the second quarter in a row, artificial intelligence (AI) tech stock Pegasystems (NASDAQ: PEGA) crushed expectations. |
Shares soared 14% on July 22 as the company eclipsed Wall Street analyst forecasts. |
The company's GenAI Blueprint product is gaining serious traction, putting the firm in a position to be a huge winner as AI evolves. |
Let's examine Pegasystems' latest results and explain why investors should pay attention to this stock. |
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Accelerating ACV Growth: A Great Sign For PEGA |
In Q2, Pega posted sales of just under $385 million for a growth rate of 9.5%. This surpassed estimates by nearly $40 million. Adjusted earnings per share (EPS) of $0.28 equated to a growth rate of 7.7%. Analysts predicted the figure would instead decline by 7.7%. |
The company's growth rate may seem modest until investors consider Pega's annual contract value (ACV) growth rate of 14%. ACV calculates the revenue growth that the company can expect to receive on an annual basis through its subscription model. |
Because it measures the revenue Pega can expect going forward, ACV growth provides a better assessment of the company's growth trajectory than revenue. |
The AVC growth rate of the company's Pega Cloud offering is even more impressive at 25%. The company is switching customers from managing their software themselves (Client Cloud) to Pega managing it (Pega Cloud). This allows for higher margins as customers share the same cloud infrastructure, making it easier to deploy new features that the company can upsell. This ongoing shift helps create more value down the road for shareholders. |
Overall, Pega's business is growing much faster now than it was in 2024. The company's net new AVC adds hit $99 million in the first half of 2025, up 60% compared to H1 2024. So, what's driving Pega to have all this success? |
Pega GenAI Blueprint Is Driving Momentum |
Pega is making it known that its GenAI Blueprint tool is a key driver of success for the company. Blueprint allows users to describe a business problem in simple language, and within minutes, it generates a blueprint for an application that can solve it. |
Users can then refine this initial blueprint to better meet their needs, with minimal coding required. They can use it to enhance an existing company solution or develop a completely new one for a different problem. |
Overall, the tool aims to use GenAI to drastically reduce the time a company takes to build an application. That is a compelling proposition, as businesses need to evolve quickly in an ever-changing world. Pega's sales teams use Blueprint themselves to show prospects customer-specific examples of how it can solve their problems in their first meeting. That makes it much easier for salespeople to secure more meetings and ultimately close the deal. |
This is why Pega says its growth reflects how "Pega GenAI Blueprint is transforming" its process of gaining customers. It notes that Blueprint is being talked about in every one of its sales campaigns. Pega believes Blueprint's implementation of GenAI in the application design phase provides a key advantage over other agentic AI competitors. |
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PEGA: Untapped Near-Term Upside, Even Greater Long-Term Potential |
Analysts broadly raised their price targets on Pega after the Q2 results. The MarketBeat consensus price target on Pega is just under $58, nearly equal to the stock's July 24 closing price. However, the average price target among analysts who updated their forecasts after the July 22 report is $65.60. That number implies around 13% upside in shares. |
This may not seem groundbreaking, but it is important to remember that the company is in the early stages of its Blueprint rollout. Given the product's success thus far, the longer-term upside opportunity for Pega is likely much larger. |
Pega notes that research firm Forrester (NASDAQ: FORR) estimates that two-thirds of global tech spending will go toward legacy systems in 2025. As Blueprint works to transform legacy systems, this shows the huge opportunity that Pega has to capture a percentage of this spending in the long term. |
GenAI Blueprint is now proving to be more than just a highly interesting product. It is clearly resonating with customers and driving growth for the company. This creates an opportunity for investors to gain a strong upside in Pegasystems' shares. |
Written by Leo Miller |
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