Strong Cloud Subscription Aids PEGA's Prospects: What's More to Come?

Core Insights - Pegasystems (PEGA) anticipates continued strong growth in its cloud-subscription business, driven by strategic initiatives including a collaboration with Amazon Web Services (AWS) to leverage trends in AI, legacy transformation, and cloud migration [1][10] Cloud Revenue Performance - In Q2 2025, PEGA's cloud revenues increased by 24% year over year to $166.7 million, reflecting a shift from legacy systems to cloud-native solutions [2] - The Cloud Annual Contract Value (ACV) rose by 28% year over year to $761 million, highlighting the growing significance of subscription revenues in overall performance [2] Strategic Initiatives - The Gen-AI-powered Blueprint is crucial for expanding the client base, with integration of AWS Transform expected to facilitate modernization of legacy systems, thereby increasing demand for Pega Cloud [3] - Availability of PEGA software on AWS Marketplace is set to enhance accessibility and streamline client onboarding, contributing to predictable revenue growth [4] Public Sector Growth - PEGA's position in the Public Sector has been strengthened by achieving FedRAMP High certification, aligning with government initiatives for cloud adoption and AI-driven transformation [5] - A 28% growth in current backlog is anticipated to convert to revenue, reinforcing the importance of cloud subscriptions for top-line growth [5] Competitive Landscape - PEGA faces significant competition from Salesforce and ServiceNow, both of which are enhancing their cloud offerings with generative AI capabilities [6][7] - Salesforce's recent innovations in its AI Cloud and ServiceNow's partnerships with major enterprises underscore the competitive pressures in the cloud subscription market [6][7] Stock Performance and Valuation - PEGA shares have appreciated by 29.5% year-to-date, outperforming the Zacks Computer and Technology sector's return of 11.2% [8] - The stock is currently trading at a forward Price/Sales ratio of 5.98X, which is below the industry average of 8.99X, indicating a potential undervaluation [11] Earnings Estimates - The Zacks Consensus Estimate for PEGA's 2025 earnings is $1.98 per share, reflecting a 5.3% increase over the past 30 days and suggesting a year-over-year growth of 31.13% [14]