Digital engineering services company EPAM Systems (NYSE: EPAM) met Wall Street’s revenue expectations in Q1 CY2026, with sales up 7.6% year on year to $1.4 billion. On the other hand, next quarter’s revenue guidance of $1.41 billion was less impressive, coming in 1.1% below analysts’ estimates. Its non-GAAP profit of $2.86 per share was 3.8% above analysts’ consensus estimates.
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EPAM (EPAM) Q1 CY2026 Highlights:
- Revenue: $1.4 billion vs analyst estimates of $1.40 billion (7.6% year-on-year growth, in line)
- Adjusted EPS: $2.86 vs analyst estimates of $2.75 (3.8% beat)
- Adjusted EBITDA: $214.6 million vs analyst estimates of $210.5 million (15.3% margin, 1.9% beat)
- Revenue Guidance for Q2 CY2026 is $1.41 billion at the midpoint, below analyst estimates of $1.42 billion
- Management raised its full-year Adjusted EPS guidance to $13.13 at the midpoint, a 3% increase
- Operating Margin: 8.3%, in line with the same quarter last year
- Constant Currency Revenue rose 3.7% year on year (1.4% in the same quarter last year)
- Market Capitalization: $5.50 billion
StockStory’s Take
EPAM’s first quarter results received a negative market reaction, as investors focused on signs of persistent client caution and delays in decision-making, particularly in North America. Management attributed revenue growth to increased demand for AI-native services, with CEO Balazs Fejes highlighting that “pure AI revenues exceeded $125 million in Q1, up nearly 20% sequentially from Q4.” However, the company also noted that macroeconomic uncertainty and underperformance in certain verticals, such as travel and consumer, contributed to lower visibility for the remainder of the year.
Looking forward, EPAM’s guidance reflects a more mixed outlook, shaped by client hesitancy and elongated deal cycles, especially for larger transformation projects. Management remains optimistic about the expanding pipeline of AI-driven opportunities, citing a strategic partnership with Anthropic and a growing number of large, non-traditional deals in the pipeline. CFO Jason Peterson acknowledged that, “We are not assuming any significant improvement in the current geopolitical setup,” and that achieving higher growth will depend on successfully closing these larger opportunities in the second half of the year.
Key Insights from Management’s Remarks
Management credited the quarter’s results to AI-native service adoption, steady expansion in key verticals, and early benefits from a cost optimization program, while also highlighting growing macro uncertainty.
- AI-native revenue acceleration: EPAM’s pure AI revenues grew nearly 20% sequentially, with over $125 million generated in Q1. This growth was supported by the launch of more than 100 new AI-native projects, reflecting healthy replenishment of the company’s opportunity pipeline and strong demand for enterprise-grade AI solutions.
- Strategic partnerships expand capabilities: The company announced a multiyear applied AI partnership with Anthropic, aiming to accelerate delivery of safe, reliable AI for clients. EPAM is building a dedicated practice with 10,000 cloud-certified architects and plans to reach 10,000 Claude certifications by year-end, underscoring its commitment to scaling applied AI delivery.
- Vertical and geographic performance: Growth was broad-based, led by Financial Services and Software & Hi-Tech, followed by gains in Consumer Goods, Retail, Travel, and Life Sciences. EMEA delivered double-digit year-over-year growth, offsetting slower momentum in the Americas, where North America showed incremental weakness.
- Cost optimization progress: The company continued targeted headcount reductions and process improvements, especially in underperforming regions, as part of ongoing cost management. These actions contributed to modestly improved gross margins and profitability, despite a challenging operating environment.
- Large deal pipeline evolution: EPAM’s pipeline now includes close to 10 outsized, multi-year AI and vendor consolidation deals—many structured under new commercial models. Management sees these opportunities as key to future growth, though conversion timing and ramp-up remain uncertain.
Drivers of Future Performance
EPAM’s outlook is driven by the pace of AI transformation projects, the ability to convert large deal opportunities, and ongoing macroeconomic headwinds impacting client spending.
- AI-driven demand and pipeline: Management expects continued momentum in AI-native and foundational service offerings, with a strong pipeline of enterprise AI transformation projects. Over 80% of top 100 clients are engaged in AI initiatives, and the company’s frameworks support hundreds of active projects, positioning EPAM to capture higher-value work as clients modernize.
- Execution on large-scale deals: Growth in the second half of the year is expected to be fueled by closing and ramping several unusually large, multi-year deals. These contracts often involve complex vendor consolidation and new pricing models, but their conversion is not fully factored into guidance due to uncertainty around timing and execution risk.
- Macro and client caution: Ongoing macroeconomic and geopolitical uncertainty, especially in North America, is causing clients to delay or reprioritize spending on larger discretionary programs. Management has factored in these risks by guiding to a wider range of revenue outcomes and expects that worsening conditions could push results toward the lower end of guidance.
Catalysts in Upcoming Quarters
Looking ahead, the StockStory team will closely watch (1) the pace and conversion of large, multi-year AI and vendor consolidation deals, (2) the impact of expanded AI partnerships and certifications on client traction, and (3) continued progress on cost optimization and margin improvement initiatives. The evolution of client spending patterns in North America and the resilience of demand in key verticals will also be key indicators for future performance.
EPAM currently trades at $103.48, down from $106.97 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).
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