ZACKSยท2025-06-26 15:10Core Insights - The emergence of agentic AI marks a new phase in the AI revolution, with Microsoft and Pegasystems adopting different strategies to leverage this technology [1][2] Group 1: Microsoft (MSFT) - Microsoft's agentic AI strategy integrates autonomous digital workers across its technology stack, with Q3 fiscal 2025 revenues reaching $70.1 billion, a 13% year-over-year increase [4] - Microsoft Cloud revenues grew 22% in constant currency, with Azure showing a 33% growth, including 16 percentage points from AI services [4] - The company processed over 100 trillion tokens in the quarter, indicating a five-fold year-over-year increase in AI service adoption [5] - Capital expenditures of $21.4 billion support long-term monetization, although diversification may limit upside potential from any single technology trend [6] - The Zacks Consensus Estimate for Microsoft's fiscal 2025 earnings is $13.36 per share, reflecting a 13.22% year-over-year increase [7] Group 2: Pegasystems (PEGA) - Pegasystems focuses on enterprise agentic AI with a strong emphasis on workflow automation and legacy system modernization, showcasing a 13% year-over-year growth in Annual Contract Value (ACV) [8] - Pega Cloud ACV surged 23%, and the company generated $202 million in free cash flow, highlighting the profitability of its subscription model [8] - Pega's Blueprint platform enables automatic transformation of legacy systems into modern applications, addressing a significant market opportunity [10] - The company has created over 1,000 new Blueprints weekly, indicating rapid customer adoption [11] - The Zacks Consensus Estimate for PEGA's 2025 earnings is $1.88 per share, indicating a 24.5% year-over-year increase [12] Group 3: Market Performance and Valuation - Over the past three months, PEGA stock surged 39.5%, significantly outperforming MSFT's 26% gain [9][13] - PEGA trades at a P/E ratio of 13.2x, while Microsoft trades at 32.93x, suggesting limited valuation expansion potential for Microsoft despite its market dominance [17] - Pegasystems' focused exposure to high-growth agentic AI applications enhances its investment appeal [17] Group 4: Conclusion - Microsoft offers stability and comprehensive AI capabilities, while Pegasystems presents superior upside potential for the second half of 2025 [20] - Pega's specialized focus aligns well with agentic AI capabilities, creating concentrated exposure to transformative technology [20] - Investors are encouraged to consider Pegasystems for its focused strategy while holding or waiting for better entry points in Microsoft [20]