Pegasystems Inc. (NASDAQ:PEGA) experienced a sharp 16% decline in its stock price on Wednesday, closing at $25.99, as the company's annual contract value (ACV) growth decelerated significantly. The drop came amid growing concerns that the company may struggle to meet its ambitious 2026 ACV targets, largely due to AI-related uncertainty causing delays in customer purchasing decisions.
To achieve the 15% ACV growth target set in February, Pegasystems now needs to add approximately $230 million in net new ACV during the second half of 2026. This figure is 2.4 times higher than the $94 million added in the same period last year, underscoring the execution risk facing the company. As of June, ACV stood at $1.620 billion, up from $1.608 billion at the end of 2025, but well below the $1.850 billion target for December.
Despite a 9% increase in second-quarter revenue to $420.7 million and record cash generation in the first half, investors focused on the demand outlook. Adjusted earnings came in at $0.35 per share, missing analyst expectations of $0.43 per share on revenue of $427.4 million. Chief Financial Officer Ken Stillwell acknowledged that closing the gap from the first half "will be very difficult," noting that the company had anticipated two-thirds of annual net additions occurring after June.
Total ACV growth slowed from 17% in December to 12% by March and further to 7% in June. Cloud ACV growth also moderated, dropping from 33% to 29% and then to 22% over the same period. The deceleration is attributed to buyer uncertainty around the economics of artificial intelligence and decisions between building or purchasing solutions. Chief Executive Alan Trefler described broad language-model deployment as "risky and expensive," while the company offers fixed pricing without per-token fees.
The broader market impact was evident, with shares of workflow competitors also declining. Appian Corp. (NASDAQ:APPN) fell 11%, ServiceNow Inc. (NYSE:NOW) slipped 5.5%, and Salesforce Inc. (NYSE:CRM) dropped 3.6%. The Nasdaq Composite hovered near unchanged during midday trading.
Pegasystems generated $288.3 million in free cash flow during the first half, up 1% year-over-year, while operating cash flow rose 3% to $298.2 million. However, the company cautioned that the slowdown in ACV growth could weigh on cash generation through the end of the year. An intraday calculation indicates the market value loss is approximately $850 million, roughly triple the free cash flow reported in the first half.
Key risks include extended customer purchase postponements, reduced cash flow, and ongoing litigation with Appian, which has increased legal expenses to $37.9 million in the first half, up from $13.0 million. Management anticipates an acceleration in ACV growth in the latter part of the year, but with the June baseline, there is limited room for another soft quarter.
The company's go-to-market strategy change has also fallen short, according to Stillwell, adding to the challenges. As Pegasystems navigates this period of uncertainty, the focus remains on closing deals and restoring confidence in its growth trajectory.
