Digital transformation consultancy Grid Dynamics (NASDAQ: GDYN) reported Q2 CY2025 results exceeding the market’s revenue expectations, with sales up 21.7% year on year to $101.1 million. Revenue guidance for the full year exceeded analysts’ estimates, but next quarter’s guidance of $104 million was less impressive, coming in 1.2% below expectations. Its non-GAAP profit of $0.10 per share was in line with analysts’ consensus estimates.

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StockStory’s Take

Grid Dynamics’ second quarter was marked by robust revenue growth driven primarily by increased adoption of its AI and data solutions, even as traditional IT spending remained subdued. Management cited strong momentum in the company’s AI-first initiatives, which accounted for nearly a quarter of organic revenue and grew almost three times faster than the overall business. CEO Leonard Livschitz acknowledged that while traditional projects faced greater scrutiny, “innovation-centric initiatives are being prioritized from a spending perspective,” helping to offset macroeconomic headwinds and sector-specific slowdowns, particularly in retail and CPG. However, the market reacted negatively to the quarter, reflecting concerns over margin pressures and cautious customer spending in legacy areas.

Looking forward, Grid Dynamics’ full-year guidance reflects management’s expectation that AI-related and innovation-driven projects will continue to drive growth, even as clients approach traditional IT investments with caution. The company aims to expand its AI-first engagement model and leverage partnerships with global technology leaders to deepen its presence in financial services and manufacturing. CFO Anil Doradla emphasized ongoing investments in specialized engineering talent and internal platforms, highlighting a balancing act between maintaining financial discipline and doubling down on future-facing technologies. Management remains optimistic about scaling new AI-powered services, with Livschitz stating, “We are embedding heavily on our AI data business to grow, and it’s a fantastic positioning where we are today with our technology capability.”

Key Insights from Management’s Remarks

Management attributed second quarter performance to accelerated demand for AI-powered projects, successful integration of recent acquisitions, and expansion in key industry verticals, while acknowledging ongoing margin headwinds and customer rationalization.

• AI-first approach accelerates growth: Grid Dynamics’ AI and data practice accounted for 23% of organic growth, with this segment expanding nearly three times faster than the broader business. Demand for enterprise-scale AI solutions, such as conversational commerce and agentic platforms, propelled wins with major clients in financial services and technology.

• Acquisitions boost sector expertise: The recent acquisitions of JUXT and Mobile Computing have enhanced Grid Dynamics’ expertise in banking and financial services and improved global delivery capabilities, particularly supporting U.S. enterprise accounts. This contributed to financial services becoming the company’s second largest vertical.

• Vertical performance mixed: Retail remained the largest vertical, buoyed by demand from specialty retail customers, though sequential revenues declined due to slower home improvement activity. Financial services saw substantial year-over-year growth, while CPG and manufacturing benefited from acquisition-driven contributions. Management attributed sector performance differences to variable AI adoption and macro-driven spending patterns.

• Margin compression persists: Gross margin was pressured by FX headwinds, increased engineering headcount for anticipated growth, and the timing of costs on fixed-price contracts. CFO Doradla noted that maintaining investment in R&D and specialized AI talent remains a priority, even as short-term cost optimization efforts continue in legacy business lines.

• Customer base rationalization: The reduction in total customers stemmed from a deliberate focus on larger enterprise accounts and the winding down of non-strategic relationships, particularly those inherited through acquisitions. Management expects this trend to persist as the company targets higher value, AI-centric partnerships.

Drivers of Future Performance

Management expects future performance to hinge on the continued expansion of AI-driven projects, disciplined cost control, and successful scaling of new business models, despite lingering caution in traditional IT spending.

• AI adoption drives revenue mix: Leadership believes that enterprise clients will increasingly prioritize AI-infused initiatives over traditional IT programs. As a result, Grid Dynamics is investing in proprietary agentic AI platforms and innovation-led projects, which are expected to drive a greater share of future revenue. Management also highlighted early successes in deploying AI-enabled solutions in manufacturing and financial services, supporting their outlook for ongoing pipeline growth.

• Margin pressures and talent investment: The company anticipates ongoing margin headwinds from increased engineering hiring and currency fluctuations. However, it is balancing these pressures with targeted cost optimization in legacy areas and a focus on higher-margin, fixed-price AI engagements. Management views leveraging senior engineering talent and upskilling as critical to capitalizing on AI opportunities and maintaining client value.

• Customer concentration and portfolio focus: The transition toward larger enterprise clients and away from smaller, non-strategic customers is expected to continue, with a focus on deepening relationships in key verticals. Management cited the importance of scaling AI-first models and leveraging strategic partnerships—including with hyperscalers and advanced robotics firms—to capture long-term growth.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be monitoring (1) the pace at which AI-powered services and platforms are adopted by existing and new enterprise clients, (2) the impact of ongoing customer rationalization on revenue stability, and (3) management’s execution on cost optimization while sustaining investments in senior engineering talent and internal AI tool development. Continued traction with strategic partners and expansion in key verticals will also be important indicators of progress.

Grid Dynamics currently trades at $8.10, down from $9.49 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free).

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