EPAM's second quarter delivered a cleaner read on the underlying business than any quarter in the past two years. Revenue of $1.415 billion grew 4.5% year over year, and adjusted for the 1.1 percentage point tailwind from foreign exchange, organic growth was a more modest 3.4%. That headline understates the more important development: operating margin expanded to 10.8% from 9.3% in the second quarter of 2025, and diluted earnings per share rose 26.3% to $1.97, with the ASR-driven share count reduction and the cost optimization program both contributing to the leverage.
The single most important development is not the revenue line. It is that EPAM is finally translating incremental revenue into genuine margin expansion after a 2024 and early 2025 characterized by utilization volatility, restructuring charges, and a war-related delivery footprint that forced the company to rebuild productivity in unfamiliar geographies. The 2025 Cost Optimization Program concluded in the second quarter, severance-driven selling, general and administrative expense has been absorbed, and the year-on-year comparison is becoming easier. The cost of revenues as a percentage of revenue fell from 71.2% to 69.6%, which is a 160 basis point swing in the right direction and is the most important economic signal in the release.
There are two reasons to be cautious. First, organic revenue growth in the Americas is essentially flat, with United States revenue up only 0.7% in the quarter. Second, the Europe segment, which grew 10.9% in the quarter, is being lifted by foreign exchange as well as by the United Kingdom and the Netherlands specifically, and management's 2026 commentary has emphasized that demand is still uneven across geographies and verticals. The strongest counterargument to the bull case is that a 10.8% operating margin in a quarter with 4.5% reported growth is fine, but if the Americas stops contributing, the path to double-digit revenue growth becomes considerably harder.
For investors, the most important forward variable is whether revenue growth can reaccelerate to mid-single-digits on a constant-currency basis by the fourth quarter of 2026, accompanied by a continuation of the cost of revenues leverage. The valuation question is whether a stock that has consolidated meaningfully off its 2024 lows is now pricing in that recovery, or whether the gap between current and prior peak operating margins still leaves room for further multiple expansion.