Key Highlights

  • EPAM Systems reported second quarter 2026 revenue of $1.415 billion, up 4.5 percent, with AI-native revenue exceeding $160 million for a sixth consecutive quarter of double-digit sequential growth.
  • The company lowered full-year 2026 revenue growth guidance to 3.2 to 4.2 percent, down from prior guidance, citing a North American growth gap as clients shift spending toward AI-led modernization faster than replacement work is ramping.
  • Financial services was the fastest-growing vertical, up 11.5 percent year over year, while software and high tech declined 1.3 percent on project ramp-downs.
  • Large multi-year AI-led deals in agentic managed services remain in the pipeline but are not yet signed, with meaningful revenue contribution now expected in the first half of 2027 rather than the second half of 2026.

Financial Services and Life Sciences Offset North America Softness

EPAM Systems (NYSE:EPAM) reported second quarter revenue of $1.415 billion, up 4.5 percent on a reported basis and 3.4 percent in organic constant currency, beating the high end of its guidance range. Financial services delivered 11.5 percent year-over-year growth and was the company's fastest-growing vertical, driven significantly by insurance and asset management clients across both EMEA and the Americas, with AI-led mainframe modernization programs using EPAM's own intellectual property as a key contributor.

Life sciences and healthcare grew 8 percent and was the second-fastest-growing vertical, while software and high tech declined 1.3 percent and business information and media fell 2.1 percent, both reflecting the completion or ramp-down of specific client programs. EMEA revenue grew 10.9 percent year over year, while the Americas, the company's largest region at 57 percent of revenue, grew just 0.5 percent, reflecting a stark geographic divergence in growth.

North American Clients Shift Spending Faster Than Replacement Work Ramps

Management said that starting in July, North American clients began reprioritizing budgets away from task-based services such as manual testing, user experience, and front-end engineering toward AI-led modernization work, with this shift occurring faster than the associated replacement revenue could ramp, creating a growth gap. The dynamic is concentrated primarily within the software and high-tech vertical's software-as-a-service client base, where some clients are redirecting spend toward tokens and infrastructure that EPAM does not provide, rather than toward services.

Separately, management acknowledged that EPAM's own go-to-market capability in North America has not been operating at the level needed, having historically been built around engineering excellence rather than the business-case-driven selling that clients increasingly expect. The company has launched a multi-quarter commercial transformation to build out this capability, modeled on investments previously made in Europe, though management said the timeline for closing that gap is taking longer than anticipated and will not meaningfully affect results until 2027.

Large AI Deals Push Into 2027, Guidance Lowered on Both Revenue and Margin Confidence

EPAM's pipeline of large, multi-year AI-led deals in agentic managed services and application maintenance continues to progress with existing clients, but none have been signed, and management now expects meaningful revenue contribution to begin in the first half of 2027 rather than the second half of 2026 given longer-than-typical procurement cycles. The company lowered full-year revenue growth guidance to 3.2 to 4.2 percent from its prior range, while raising non-GAAP operating margin guidance to the high end of its previous 15 to 16 percent range on the strength of first-half profitability.

Full-year non-GAAP diluted EPS guidance was set at $13.08 to $13.24, representing growth of over 14 percent at the midpoint, with third-quarter revenue guided to $1.410 billion to $1.425 billion, implying only 1.7 percent year-over-year growth at the midpoint. Free cash flow conversion is now expected to be around 70 percent for 2026, below the company's typical 80 to 90 percent range, due to delayed client payments and elevated days sales outstanding, though management expects conversion to normalize by 2027.

Conclusion

EPAM's guidance cut reflects a genuine shift in how North American clients are buying technology services, one that management characterizes as a timing gap rather than lost business, since the company says it has not observed demand migrating to competitors. Whether the go-to-market transformation can close that gap as effectively in North America as it did in Europe remains the central swing factor for 2027, particularly as large AI-led deals move through a longer procurement cycle than initially modeled. With AI-native revenue still just 11 percent of the business despite six consecutive quarters of double-digit sequential growth, the pace at which that mix shift reaches a scale sufficient to lift overall company growth is likely to remain a key area of investor focus.