PEGA Q2 Deep Dive: AI-Driven Growth and Cloud Expansion Propel Performance

Enterprise workflow software provider Pegasystems (NASDAQ:PEGA) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 9.5% year on year to $384.5 million. Its non-GAAP profit of $0.28 per share was 18.2% above analysts’ consensus estimates.

Is now the time to buy PEGA? Find out in our full research report (it’s free).

StockStory’s Take

Pegasystems’ second quarter results drew a strong positive reaction from the market, reflecting momentum in its core business. Management attributed the robust performance to accelerated adoption of its low-code, AI-powered automation platform, Pega Infinity, and increasing client interest in digital transformation and workflow modernization. CEO Alan Trefler credited the company’s architectural approach and the rapid uptake of Pega Blueprint, an AI-enabled application design tool, for driving expanded customer engagement and supporting new deal activity. Management also highlighted growth in annual contract value (ACV) and cloud migration as central to the quarter’s results.

Looking forward, Pegasystems’ outlook centers on sustained investment in AI-driven innovation, expanding partnerships with major systems integrators, and broadening its reach through initiatives like partner-branded Blueprint solutions. Management believes its unique architecture enables clients to safely apply AI to critical business processes, which could accelerate legacy system transformation. CFO Kenneth Stillwell stated, “We want to take this momentum and continue to drive accelerated growth,” emphasizing that a focus on both new and existing workflows should support durable revenue streams and margin expansion in the coming year.

Key Insights from Management’s Remarks

Management pointed to strong client demand for AI-powered automation and a differentiated approach to legacy transformation as the main drivers of second quarter performance.

• AI-enabled Blueprint adoption: Pegasystems’ Blueprint application design tool gained rapid traction, allowing users to leverage generative AI for designing and modernizing business processes. Management reported that over 1,000 organizations are now using Blueprint, helping to reduce the time and complexity of enterprise application development.
• Cloud migration momentum: The company saw significant growth in Pega Cloud, with an increase in cloud-based annual contract value. CFO Kenneth Stillwell explained that Blueprint is now a central part of almost every sales campaign, and that “Pega Cloud is the SKU that tends to be where that business goes when it comes off of Pega Blueprint.”
• Partner ecosystem expansion: Recent initiatives included the launch of partner-branded Blueprint offerings and a new strategic collaboration with AWS. This allows partners like Accenture, Capgemini, and Infosys to embed their intellectual property in Blueprint, expanding both Pegasystems’ reach and its partners’ capabilities.
• Legacy transformation demand: Management reported that enterprises are accelerating efforts to replace outdated core systems, often using Blueprint to modernize processes that were previously handled by legacy software like COBOL or Lotus Notes. This trend was described as a crucial growth avenue for the next several years.
• Stable macro environment: While acknowledging ongoing global uncertainties, management noted that there were no significant headwinds from tariffs or economic instability in the quarter. Stillwell suggested the business environment was “slightly better now than it was a quarter ago,” supporting continued sales and pipeline growth.

Drivers of Future Performance

Management anticipates continued growth driven by AI-enabled workflow modernization, deeper partner engagement, and expanding cloud adoption, although seasonality and investment in innovation may impact margins.

• Accelerated AI and legacy transformation: Pegasystems expects demand for generative AI solutions and legacy system modernization to remain strong, positioning Blueprint and Pega Infinity as primary growth catalysts. Management believes this will drive both new business and expansion within existing clients.
• Partner and marketplace expansion: The company is investing in strategic partnerships, including the AWS agreement and partner-branded Blueprint solutions, which should extend sales reach and facilitate integration with major hyperscalers. These efforts are expected to yield incremental opportunities, although the impact may develop over several quarters.
• Seasonal factors and cost discipline: Management flagged that the third quarter is historically softer due to fewer contract renewals and lower term license activity, which could temporarily affect revenue and free cash flow. Continued focus on cost management and disciplined capital allocation is expected to support operating margin stability.

Catalysts in Upcoming Quarters

In the coming quarters, our team will monitor (1) the adoption rate of partner-branded Blueprint solutions and their impact on new client acquisition, (2) the pace and scale of cloud migration across Pegasystems’ customer base, and (3) the degree to which legacy transformation projects convert into durable revenue streams. Additional focus will be placed on updates to the AWS partnership and the rollout of new AI-driven platform features.

Pegasystems currently trades at $58.10, up from $50.97 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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