Pegasystems Inc. (NASDAQ:PEGA) develops software used by major companies and governments to automate everyday activities, including loan processing and handling customer complaints. The company is widely recognized as a leader in low-code automation, using tools to build workflows with minimal manual coding. On September 28, D.A. Davidson cut its rating from Buy to Neutral, with a price target of $32. The analyst is worried that powerful new AI models could chip away at what PEGA sells. At 51% below its 52-week high of $68.10, the stock is trading close to the analyst’s price target of $32.
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The AI Question
The primary concern stems from rapid advancements in generative AI. A new wave of AI models can now automate tasks from plain instructions. This makes the specialized tooling from PEGA obsolete. That is the case D.A. Davidson made. The analyst warns that competition could hold back PEGA’s growth and that Wall Street’s forecasts may be too high. This risk, however, applies most directly to greenfield software deployments, where organizations evaluate new systems from scratch. Existing systems that Pega already runs, and their expansions, are harder to rip out as they hold higher switching costs.
The Bull Case
Here is the case for the buyers. PEGA is not a bystander in AI. It has built its own AI tool, called Blueprint, that uses these same models to help customers design and generate workflows faster, which could turn the technology into a selling point. PEGA is also a repeat leader in industry rankings of business automation, with a sticky base of large enterprises and government agencies that do not swap out core systems easily. At about 20 times earnings after a 51% fall from its high, the stock is cheap for a profitable software maker.
The Bear Case
The bears think the AI threat is real and early. When the tools that automate work can themselves be automated by a chatbot, the value of a specialized platform can fade in time. Alongside D.A. Davidson, other firms have turned cautious too, suggesting widespread concern. If new customers increasingly try AI-built workflows, it could stall PEGA’s growth, and current estimates would prove too high. Big investors have been pulling back since the start of the year. Insider Monkey data shows 35 hedge funds held PEGA in the second quarter of 2026, down from 41 in the first.
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The Bottom Line
The valuation debate centers on whether generative AI enhances Pegasystems Inc.’s product suite or threatens its core business model. The bulls see a profitable automation leader with a certain level of loyal customer base and its own AI product to sell. The bears see a specialized platform at risk of being commoditized by smarter and cheaper models. Additionally, the analysts are already trimming their hopes for the stock. The outcome will be decided by PEGA’s ability to innovate its product and retain its customer base as well as the speed at which AI-built workflows win over cautious enterprises.
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This article is originally published at Insider Monkey.
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