Digital engineering services company EPAM Systems (NYSE: EPAM) announced better-than-expected revenue in Q3 2026, with sales up 2.3% year on year to $1.43 billion. On the other hand, next quarter’s revenue guidance of $1.41 billion was less impressive, coming in 0.6% below analysts’ estimates. Its non-GAAP profit of $3.51 per share was 3.1% above analysts’ consensus estimates.
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EPAM (EPAM) Q3 2026 highlights:
- Revenue $1.43 billion vs S&P analysts’ estimates of $1.42 billion (2.3% year-on-year growth, 0.5% beat)
- Adjusted EPS $3.51 vs S&P analysts’ estimates of $3.41 (3.1% beat)
- Revenue guidance $1.41 billion at the midpoint for Q4 2026, below analyst estimates of $1.42 billion
- Adjusted EPS guidance Management slightly raised its full-year adjusted EPS guidance to $13.27 at the midpoint
- Operating margin 12.3%, up from 10.4% in the same quarter last year
- Constant currency revenue rose 2.5% year on year (7.1% in the same quarter last year)
- Market capitalization $8.55 billion
StockStory’s take
EPAM’s latest quarter saw a significant positive reaction from the market, reflecting outperformance versus Wall Street expectations for both revenue and adjusted earnings. Management credited the company’s progress to rapid expansion in AI-native services, which grew to represent a higher proportion of total sales. CEO Balázs Fejes highlighted new strategic deal signings and continued momentum in financial services and life sciences as core contributors. The company also pointed to improved operating margins, with Fejes noting, "Profitability, led by the gross margin, improved again, and adjusted earnings per share remained strong."
Looking ahead, EPAM’s forward guidance is shaped by expectations for continued growth in AI-driven projects, incremental contributions from recently signed large deals, and ongoing investments in sales and marketing, particularly in North America. Management acknowledged that some verticals remain pressured, but believes investments in go-to-market transformation and AI partnerships will help offset these challenges. CFO Jason Peterson cautioned that certain tax incentives will have a reduced impact next year, but stated, “We are focused on actions that will improve gross margin in the future.” The company expects a gradual ramp in large deal contributions and remains focused on stabilizing underperforming verticals.
Key insights from management’s remarks
EPAM’s leadership attributed the quarter’s performance to accelerating demand for AI-native solutions, strong deal activity, and operational improvements, while highlighting a mixed environment across industry verticals and geographies.
- AI-native revenue expansion: EPAM’s AI-native offerings delivered sequential double-digit growth and now account for approximately 13% of total revenue, with management raising the annual AI-native revenue outlook to at least $650 million. This reflects increased client demand for advanced automation, platform modernization, and AI-driven transformation projects.
- Large strategic deals signed: Three multi-year, high-value deals were closed, primarily in financial services and energy. These deals are mostly expansions with existing clients, focusing on agentic managed services and application maintenance, and are expected to begin ramping in the coming year. Management described most wins as taking share from incumbents or in-house teams, often through disruptive, AI-forward service propositions.
- Geographic performance diverges: EMEA (Europe, Middle East, and Africa) led growth with mid-single-digit expansion, while the Americas remained flat year-over-year but showed sequential improvement. Management cited early signs of stabilization in North America, supported by go-to-market changes and new logo wins, though high-tech and consumer sectors remain pressured.
- Operational transformation underway: Efforts to revamp EPAM’s sales and commercial approach, especially in North America, are ongoing. The company increased its delivery capacity and is hiring to meet anticipated demand, noting that headcount growth should be viewed as a forward indicator of revenue trajectory.
- Cybersecurity and AI partnerships: New offerings in AI-native cyber resilience are driving both direct and downstream demand, supported by partnerships with leading cloud, AI, and cybersecurity vendors. Over 25,000 certifications were earned across platforms like Anthropic, OpenAI, Google Gemini, and Microsoft, enhancing EPAM’s reputation and capability set.
Drivers of future performance
Management expects future performance to hinge on ramping large deals, further AI-native adoption, and the success of North America’s transformation, while monitoring mixed demand signals across verticals.
- Large deals ramping up: The recently signed multi-year contracts are expected to begin contributing meaningfully from the first half of next year, with initial margin headwinds anticipated due to setup costs but normalization over time. Management emphasized that additional large deals are in the pipeline, which could further lift growth if secured.
- AI and go-to-market investments: Ongoing investment in AI capabilities and expanded sales coverage, particularly in North America, are expected to drive incremental revenue and support stabilization in underperforming verticals. Management anticipates modest price increases and an increasing share of fixed-fee (non-time & materials) contracts as AI-driven projects scale.
- Mixed industry and geographic trends: Financial services and energy are projected to remain strong, while consumer, retail, and some tech verticals face continued headwinds tied to macroeconomic volatility and inflation. Management acknowledged that benefits from R&D tax incentives in Poland will diminish, contributing to a potential moderation in gross margin next year.
Catalysts in upcoming quarters
In the coming quarters, the StockStory team will be watching (1) the ramp-up and client impact of newly signed large deals, (2) measurable improvement in North American growth and the effectiveness of ongoing go-to-market changes, and (3) expansion of AI-native and cybersecurity offerings. Additional milestones will include new deal signings, progress in underperforming verticals, and the realization of efficiency gains from operational transformation.
EPAM currently trades at $162.61, up from $137.40 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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