Pegasystems (PEGA Quick QuotePEGA - Free Report) shares have appreciated 6.9% year to date (YTD), underperforming the broader Zacks Computer & Technology sector, as well as its closest peers, including Microsoft (MSFT Quick QuoteMSFT - Free Report) , Oracle (ORCL Quick QuoteORCL - Free Report) and International Business Machines (IBM Quick QuoteIBM - Free Report) . While the broader sector has appreciated 7.4%, shares of Microsoft, Oracle and IBM have jumped 19.4%, 38.4% and 29%, respectively, on a YTD basis.

The underperformance can be attributed to a challenging macroeconomic environment and stiff competition from Microsoft and Oracle in the business process management domain. Uncertainty over tariffs and trade policy doesn’t bode well for PEGA’s prospects. Second-quarter 2025 revenues and free cash flow are expected to suffer from seasonality. Unfavorable currency fluctuations are expected to negatively impact Pega Cloud revenues in 2025.

PEGA Stock’s Performance

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Nevertheless, Pegasystems is benefiting from robust demand for its AI-powered and cloud-based solutions. As organizations accelerate digital modernization, the company’s platform continues to gain traction, ensuring durable, long-term growth potential in a market that is expected to reach over $130 billion by 2027.

PEGA shares are trading above the 50-day and 200-day moving averages, indicating a bullish trend.

PEGA Shares Trade Above 50-Day and 200-Day SMAs

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So, what should investors do with PEGA stock? Let’s find out.

PEGA Rides on Strong ACV Growth, Subscription Business

Pegasystems’ completion of the shift to the subscription-based business model has been a key catalyst. Pega Cloud Annual Contract Value (ACV) surged 23% year over year to $701 million, reflecting rising enterprise adoption of the platform. ACV growth is expected to remain robust thanks to ongoing digital transformation, strong adoption of Pega GenAI Blueprint and case-based pricing approach. 

Pegasystems recently announced Pega Blueprint capabilities that include the usage of agentic AI to ingest, analyze and convert a wide array of legacy system assets, including videos, documentation, UI screens, technical files, and source code, into modern applications much faster. Pega Blueprint, the generative AI-powered workflow design agent, accelerates application development projects from months to weeks, and the latest capabilities harness digital transformation much faster.

Rising enterprise demand for Pegasystems’ flexible, term-based licensing model, which provides a faster, more scalable path to digital adoption, is a key catalyst. Pega GenAI Blueprint, which focuses on cross-sell and upsell, as well as shifting existing clients to Pega Cloud, is a major growth driver. Pega Cloud ACV is expected to expand in the coming years.

The company’s expanding enterprise clientele in key verticals, including financial services, insurance, telecommunications, health care, manufacturing and public sector. The introduction of the Blueprint for Government Efficiency Toolkit, a generative AI offering that helps public sector agencies accelerate digital transformation and increase efficiency, is noteworthy. Pegasystems recently achieved FedRAMP High Authority to Operate (ATO) status for its suite of generative AI solutions. This will enable U.S. federal agencies to deploy AI-powered tools like Pega Coach, Pega Knowledge Buddy, Pega Automate and Pega developer agents securely, thereby expanding PEGA’s federal footprint.

Pegasystems now expects revenues of $1.7 billion for 2025, higher than the previous guidance of $1.6 billion due to growing ACV, momentum in Pega GenAI Blueprint and an expanding market. Pegasystems achieved the rule of 40 (ACV growth + free cash flow margin) in 2024. The company now expects gross margin to hit 80% in the 2027-2028 timeframe. Free cash flow is expected to see a CAGR of 15% to 20% between 2025 and 2028, hitting more than $700 million at the end of 2028.

PEGA’s Estimate Revision Shows Upward Movement

The Zacks Consensus Estimate for second-quarter 2025 earnings is pegged at 24 cents per share, up 50% over the past 60 days. However, the figure indicates a 7.69% year-over-year decline. The consensus mark for revenues is pegged at $368.8 million, indicating 5.02% year-over-year growth.
 

The consensus mark for 2025 earnings is pegged at $1.88 per share, up 14% over the past 60 days, indicating a 24.5% increase over 2024’s reported figure. The Zacks Consensus Estimate for revenues of $1.67 billion indicates 11.38% growth over 2024’s reported figure.

PEGA Shares Are Overvalued

Pegasystems shares are overvalued, as suggested by the Value Score of F. 

In terms of the trailing 12-month Price/EBITDA (P/EBITDA), PEGA is trading at 23.79X, a premium compared with the Zacks Computer Software market’s 20.32X. 

Pegasystems shares are trading at a premium compared to IBM. In terms of the trailing 12-month P/EBITDA, IBM shares are trading at 15.35X.

P/S Ratio (F12M)

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Conclusion

Pegasystems is benefiting from a strong portfolio, expanding ACV and robust free cash flow generating ability.

Pegasystems currently sports a Zacks Rank #1 (Strong Buy) and a Growth Score of A, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology. You can see the complete list of today’s Zacks #1 Rank stocks here.