Pegasystems: Mid-Cap GenAI Stock With Big Long-Term Potential

Key Points

• Pegasystems recently saw shares jump by over 25% in one day after its latest earnings release.
• The company's Pega GenAI Blueprint product could potentially be a massive long-term winner as businesses look to implement AI.
• The company's shift toward a cloud-first deployment can help expand margins over time.

Among the companies that have reported earnings so far in the Q1 2025 cycle, Pegasystems NASDAQ: PEGA is one that stands out. The AI stock popped by nearly 29% after its earnings release.

The company’s GenAI product is resonating with customers. As of the April 28 close, Pega's total return was approximately -2% in 2025, which compares favorably to the overall technology sector. The Technology Select Sector SPDR Fund NYSEARCA: XLK had a total return of around -10% through the same timeframe.

So, why was Pega able to have such significant success in Q1, and can the stock continue winning long-term?

PEGA: Crushes Estimates, Cloud Migration Is On the Right Path

In Q1 2025, Pegasystems impressed on several fronts. Sales were nearly $476 million, a whopping $119 million above expectations. Adjusted earnings per share (EPS) beat estimates by $0.50, coming in at $1.53 per share. Free cash flow hit a record of $202 million.

The company’s annual contract value (ACV) increased by 13% in the quarter. The company regards ACV as its most important business indicator. This figure essentially measures the amount of contracted annual revenue the firm has secured to this point. The Pega-managed software offering called Pega Cloud grew ACV by 23%. This was nearly four times the growth rate of its client-managed offering, Client Cloud. This is great to see, as Pega is actively working to move clients to Pega Cloud. It is a higher-margin business and increases the stickiness of the customer relationship. Currently, Pega Cloud accounts for roughly 48% of total ACV. This gives the company significant margin growth potential as this balance changes.

Pega GenAI Blueprint: The Ace Up Pega’s Sleeve?

One of Pegasystems’ most discussed products is Pega GenAI Blueprint. This software essentially examines a company’s legacy workflows and helps build AI-centric applications that can make them more efficient. It involves automating processes that humans previously needed to do manually. Ultimately, through this and other products, the firm sees itself at the center of “agentic AI."

Pega believes that GenAI Blueprint is significantly differentiated from other AI agents. Workflows built with Blueprint use AI during their design phase. A human must approve that design and any changes made to it afterward. Then, when someone wants to automate a process, they give Pegasystems a prompt. The system then matches that prompt with a specific, pre-approved workflow that solves the problem. This contrasts with other AI agents that primarily make decisions in the runtime phase. AI agents like these receive a prompt and attempt to find a solution in real-time. This means that results could vary significantly unless someone lays out all the prompt instructions perfectly each time. The agent’s underlying model updates could also change the results. Pega believes that Blueprint allows companies to utilize the power of AI agents but in a controlled and predictable way. This feature is compelling, especially for industries that are highly regulated.

The company says that Blueprint is starting to gain significant traction. Over 1,000 new blueprints are being made a week, double the engagement seen a month ago. It also states that enthusiasm for GenAI Blueprint was a key driver of its strong ACV growth.

Pega: GenAI Blueprint Could Be Massive for This Stock Long-Term

Pegasystems is a highly interesting company. The fact that it has a significant way to go in moving clients to the cloud provides a realistic opportunity for margin expansion over time. It sounds like the company may have a very strong product on its hands with Gen AI Blueprint. The company says that the product has “profoundly changed our business," and that Blueprint is influencing every single customer relationship. Additionally, the sales team is gaining confidence due to the strength of the product.

Could GenAI Blueprint be the product that turns the revolutionary potential of AI for enterprises into reality? The market opportunity for technology like this is absolutely massive. With a valuation of under $8 billion as of the close of April 28, this stock could have a huge long-term upside if GenAI Blueprint continues to gain traction. It is too early to say that this is the case, but the company’s Investor Day on June 2 should provide valuable insights surrounding this.

On average, updated price targets tracked by MarketBeat after the April 22 earnings release signal upside of approximately 17% over the next 12 months versus the Apr. 28 closing price.