Digital engineering services company EPAM Systems (NYSE: EPAM) reported Q2 CY2026 results beating Wall Street’s revenue expectations, with sales up 4.5% year on year to $1.41 billion. On the other hand, next quarter’s revenue guidance of $1.42 billion was less impressive, coming in 1.8% below analysts’ estimates. Its non-GAAP profit of $3.38 per share was 7.6% above analysts’ consensus estimates.

Is now the time to buy EPAM? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

EPAM’s second quarter results were met with a significant negative market reaction, as investors focused on the company’s underwhelming growth trajectory in North America despite outperforming market revenue and non-GAAP profit expectations. Management attributed the quarter’s performance to continued strength in AI-native services and solid gains in Financial Services and Life Sciences, while acknowledging that growth was offset by project ramp-downs in Software & Hi-Tech and persistent challenges in the Americas. CEO Balazs Fejes was direct about these issues, noting, “North America is not growing fast enough...this is not a story about waiting for the macro to turn, we own it.”

Looking ahead, management’s guidance reflects caution as EPAM expects only modest sequential revenue growth, with larger contributions from recently developed AI-led opportunities delayed until 2027. Efforts are underway to revamp EPAM’s go-to-market approach in North America, emphasizing commercial discipline and domain-led sales motions, especially in response to shifting client demand toward AI modernization. CFO Jason Peterson emphasized that while the pipeline for large AI-driven deals is encouraging, “none of them are signed yet,” and revenue contributions are not expected this year. The company is also focused on maintaining operating margins by improving cost efficiency and leveraging price increases where possible.

Key Insights from Management’s Remarks

Management highlighted that second quarter growth was propelled by AI-native services, robust performance in Financial Services, and improvements in profitability, while regional and vertical disparities limited overall momentum.

• AI-native revenue expansion: EPAM’s AI-native service lines grew over 11% of total revenue, driven by increased demand for agentic engineering and modernization projects. Management cited over $160 million in AI-native revenue, marking the sixth consecutive quarter of double-digit sequential growth as a result of complex enterprise deployments and upskilled talent.
• Financial Services and Life Sciences outperformed: Growth was led by the Financial Services vertical, where AI-enabled mainframe modernization and legacy system transformation drove client wins. Life Sciences and Healthcare also delivered accelerating growth, propelled by AI-assisted pharma R&D and medtech solutions.
• Regional performance divergence: EMEA delivered strong double-digit growth, benefiting from proactive sales motions and domain-led go-to-market strategies, while the Americas region saw minimal growth due to shifting client demand and internal execution gaps. Management was candid that commercial discipline and sales transformation are being prioritized in North America to address these challenges.
• Shift in client demand: Clients, particularly in North America, accelerated reprioritization away from traditional task-based services (like manual testing and front-end engineering) toward AI-led modernization, creating a near-term revenue gap as new services ramp up more slowly than legacy work declines.
• Operational discipline supports margins: Despite uneven growth, improved pricing, fixed-fee profitability, and ongoing cost optimization—especially in talent deployment and delivery centers—helped expand both GAAP and non-GAAP operating margins year over year.

Drivers of Future Performance

EPAM’s outlook is shaped by slow North American growth, ongoing commercial transformation, and continued investment in AI-native offerings.

• North America sales realignment: Management is investing in expanding and retraining its North American salesforce, shifting from an engineering-led to a domain and business development-led approach. This is intended to better address changing buyer expectations and position EPAM for future growth, but management acknowledged that results will be gradual and likely not materially evident until 2027.
• Delayed impact of large AI deals: While the pipeline of substantial AI-driven and agentic managed services deals is growing, these are primarily with existing clients and remain unsigned. Management expects meaningful revenue contribution from these engagements to begin in early 2027, rather than later this year, creating a near-term growth gap.
• Margin management amid muted discretionary spend: Non-AI discretionary spending remains subdued across client segments, and EPAM aims to mitigate this with continued cost efficiencies, strong growth in AI-native revenues, and selective pricing improvements. Management expects to operate at the high end of its previous margin forecast for the remainder of the year, despite these headwinds.

Catalysts in Upcoming Quarters

Going forward, the StockStory team will focus on (1) the pace and success of EPAM’s North American sales transformation and ability to rebuild growth, (2) the closing and ramp-up of large AI-driven managed services deals in the pipeline, and (3) sustained margin performance amidst muted discretionary spend and evolving client technology priorities. Progress in these areas will be closely watched to assess the company’s strategic execution.

EPAM currently trades at $94.10, down from $110 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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