Pegasystems: Investor Day Emphasizes AI and Launchpad

At Pegasystems’ investor day, the main areas of focus were generative AI, sales strategy, Pega Infinity, Pega Launchpad, and a reiterated commitment to the rule of 40, which in this case is growth in annual contract value plus free cash flow margin. While we are pleased that Pegasystems’ model transition is nearly complete and the firm has a clear direction, we see no changes to our long-term thinking and maintain our fair value estimate of $52 for the no-moat name. If Pegasystems were to meet its three- to five-year operating targets, we see material upside to our estimates, particularly on profitability, due to cost reductions. Along with our other software names, shares of Pegasystems have performed well midway through the year. We view shares as fairly valued but would prefer to invest in cleaner and wide-moat software names, such as ServiceNow and Salesforce.