Executive Summary / Key Takeaways

• AI-Driven Growth and Strategic Inflection: Grid Dynamics is experiencing a significant growth inflection point, fueled by its "AI-first" strategy. AI demand contributed over 25% of Q3 2025 organic revenue, growing 10% sequentially, and is driving new, multi-quarter engagements extending into 2026.
• Technological Differentiation and GAIN Model: The company's deep expertise in AI, machine learning, and data platforms, coupled with its proprietary Grid Dynamics AI-Native (GAIN) engagement model, provides a competitive edge. This model is designed to deliver substantial productivity improvements (over 30% internally benchmarked) and accelerate time-to-market for Fortune 1000 enterprises.
• Robust Financial Performance and Outlook: Grid Dynamics achieved record Q3 2025 revenue of $104.2 million, an increase of 19.1% year-over-year. The company forecasts full-year 2025 revenues between $410.7 million and $412.7 million, representing 17.1% to 17.7% growth year-over-year, and anticipates at least 300 basis points of margin expansion over the next 12 months.
• Disciplined Capital Allocation and Shareholder Value: With $338.6 million in cash and cash equivalents as of September 30, 2025, and an undrawn $30 million revolving credit facility, Grid Dynamics maintains strong liquidity. The Board's authorization of a $50 million share repurchase program signals confidence in the company's valuation and long-term prospects, while M&A remains a priority.
• Expanding Competitive Moat and Diversification: Strategic acquisitions (JUXT, Mobile Computing) and a "Follow the Sun" global delivery model across 19 countries enhance its market reach and talent pool. The company is actively diversifying its vertical exposure, with strong growth in Finance and TMT, reducing reliance on traditional Retail.

Setting the Scene: Grid Dynamics' Evolution in the AI Era

Grid Dynamics Holdings, Inc. ($GDYN) stands as a technology consulting and digital services provider, specializing in enterprise-level AI, platform and product engineering, and advanced analytics. Founded in 2006 in Silicon Valley, the company has a rich history rooted in leveraging emerging technologies to solve complex enterprise challenges. Its journey began with early implementations of natural language processing for major e-commerce and retail search engines by 2012, culminating in the publication of its first book on AI in 2017. This foundational expertise in AI and data has been a consistent thread, shaping its current strategic direction.

The company's core business revolves around cloud platform and product engineering, supply chain and advanced manufacturing, and data and machine learning platform engineering. Grid Dynamics differentiates itself through a culture that prioritizes client success, product-centric solutions over mere projects, and a "whatever it takes" dedication to delivering tangible business results. This ethos, combined with proprietary processes optimized for innovation and a strong emphasis on talent development, positions the company as a trusted engineering partner for Fortune 1000 enterprises.

The digital transformation industry, where Grid Dynamics operates, is currently undergoing a profound shift, driven by the accelerating adoption of Artificial Intelligence. Enterprises are moving beyond experimental proofs-of-concept to demand enterprise-scale AI implementations that deliver measurable return on investment. This trend is reshaping the IT services landscape, with innovation-centric initiatives taking precedence over traditional digital transformation spending. The workforce pyramid in the IT industry is also evolving, favoring senior talent and AI-centric agents, a shift that aligns well with Grid Dynamics' existing workforce, which is already weighted towards experienced engineers.

Technological Edge: The GAIN Model and AI Horizons

Grid Dynamics' competitive advantage is deeply embedded in its technological prowess, particularly its "AI-first" approach. This strategy is not merely about adopting AI tools but about fundamentally retooling every aspect of its operations and service delivery. The company's technology vision is structured across three distinct horizons: AI-first delivery, Agentic AI at scale, and Physical AI.

At the forefront of its AI-first delivery is the proprietary Grid Dynamics AI-Native (GAIN) engagement model. This model is a comprehensive framework that rethinks team composition, engineering workflows, and best practices to maximize the productivity impact of AI. Internally, this model is expected to accelerate project delivery by achieving over 30% productivity improvements. The GAIN model fundamentally changes project economics and delivery timelines, enabling Grid Dynamics to undertake labor-intensive legacy modernization projects that were previously economically unfeasible by substituting extensive human efforts with specialized teams equipped with AI agents. This also dramatically improves presales, allowing the creation of high-quality proof of concepts in hours instead of weeks, thereby boosting conversion rates and accelerating sales cycles.

The second horizon, Agentic AI at scale, focuses on deploying sophisticated AI platforms for both customers and employees. Grid Dynamics partners with large enterprises to build bespoke Agentic platforms that empower clients to create a full spectrum of AI agents (low-code and high-code) within secure, scalable environments. These initiatives drive Agentic customer engagement and enhance decision-making across enterprises. For instance, the company is developing an innovative Agentic AI platform for a leading payment company that creates a multi-agent marketplace, intelligently connecting consumers with optimal deal offerings. For a major financial services company, Agentic AI is automating intelligent processes, expected to free up about 20% of seller capacity, leading to improved customer retention and business growth.

The third horizon, Physical AI, involves integrating AI with the physical world through technologies like digital twins, collaborative robotics, and edge computing. This is fundamentally transforming the industrial robotics landscape, replacing legacy platforms with modern AI-enabled solutions. Grid Dynamics is advancing this initiative through new partnerships with robotics platform providers, exemplified by the launch of SmartRay software for robotic weld inspection in collaboration with Wandelbots. The company also released an Intralogistics Optimization Starter Kit for NVIDIA Omniverse, enabling retailers, manufacturers, and logistics companies to optimize warehouse efficiency and reduce labor costs.

For investors, these technological differentiators are critical. They form a robust competitive moat, allowing Grid Dynamics to capture a higher share of high-margin, ROI-driven AI initiatives. The ability to deliver measurable business outcomes within quarters, rather than years, makes these AI projects more attractive than traditional digital transformation programs. This technological leadership translates into enhanced pricing power and sustained long-term growth, as the company becomes an indispensable partner in its clients' AI journeys.

Competitive Landscape and Strategic Positioning

Grid Dynamics operates in a highly competitive information technology services industry, vying for market share with both large, diversified players and more specialized firms. Key competitors include global consulting and technology giants like Accenture (ACN) and IBM (IBM), as well as IT services providers such as Cognizant (CTSH) and EPAM Systems (EPAM).

Compared to Accenture, Grid Dynamics positions itself as a more specialized and agile player, particularly in niche AI-driven analytics and release automation. While Accenture offers a broader, more generalized suite of services with extensive global reach, Grid Dynamics' focus on collaborative, client-specific strategies and faster prototyping for AI platforms provides a differentiation. Grid Dynamics' agility in developing custom solutions and its emphasis on early-stage prototypes could exploit Accenture's potential weakness in highly customized, rapid-innovation projects. However, Accenture's scale and diversified revenue streams generally lead to stronger cash flow generation and profitability.

Against IBM, Grid Dynamics demonstrates superior agility and client collaboration for digital transformation projects, potentially offering more streamlined development processes for AI analytics. IBM, with its deep historical expertise in mainframes and proprietary technologies like Watson AI, provides comprehensive but potentially more complex solutions. Grid Dynamics' focus on specialized services for Fortune 1000 clients allows it to capture market share in niche AI applications, differentiating itself through quicker time-to-market for custom platforms. While IBM may have an edge in technological breadth and long-term profitability, Grid Dynamics leads in operational execution for specialized projects.

When compared to Cognizant, which emphasizes cost-optimized, large-scale implementations and reliable cash flow from long-term contracts, Grid Dynamics differentiates itself with more innovative AI analytics tools and a collaborative approach to strategy consulting. Grid Dynamics' market positioning might lead in specialized automation services, offering greater flexibility for clients, though it may not compete on cost leadership as effectively as Cognizant.

Against EPAM Systems, another digital transformation specialist, Grid Dynamics is closely matched in its engineering expertise and focus on agile development. Both companies exhibit strong growth trends, but Grid Dynamics' specific focus on AI-first delivery and Agentic AI platforms provides a distinct edge in emerging areas.

Grid Dynamics' competitive advantages, or "moats," include its specialized expertise in AI and analytics, fostering enhanced customer loyalty and potentially stronger recurring revenue and improved margins. Its collaborative partnerships cultivate superior customer relationships, aiding faster growth and better capital efficiency. However, vulnerabilities exist in its relatively limited scale compared to industry behemoths, which could impact margins and cash flow stability, and its potential dependence on specific sectors, which could lead to fluctuating revenue.

The company actively mitigates these vulnerabilities through its "GigaCube strategy," which includes increasing industry diversification, strengthening its "Follow the Sun" global delivery model across 19 countries, and leveraging strong relationships with hyperscaler partners. Partner-influenced revenue exceeded 18% of total company revenue in Q3 2025, underscoring the value of this ecosystem-driven approach. Grid Dynamics is expanding certifications and building joint solutions with hyperscalers like NVIDIA (NVDA), Google (GOOGL), Anthropic, and OpenAI, further solidifying its competitive standing.

Financial Performance and Operational Momentum

Grid Dynamics delivered a robust financial performance in the third quarter of 2025, underscoring the efficacy of its AI-first strategy and strategic acquisitions. The company reported record revenues of $104.2 million, marking a significant 19.1% increase year-over-year and a 3.0% sequential rise. Year-to-date revenues for the nine months ended September 30, 2025, reached $305.7 million, up 22.1% from the prior year. This growth was fueled by the continued diversification of its customer base and the contributions from strategic acquisitions made in 2024. AI demand was a notable driver, growing 10% sequentially and contributing over 25% of the third-quarter organic revenue. Despite the strong top-line growth, GAAP net income for Q3 2025 was $1.2 million, a decrease from $4.3 million in the prior-year quarter, primarily due to higher cost of revenues.

Gross margin declined to 33.3% in Q3 2025 from 37.4% in Q3 2024, attributed to higher cost structures in key delivery locations and adverse foreign exchange impacts. Non-GAAP EBITDA for Q3 2025 was $12.7 million, or 12.2% of revenues, compared to $14.8 million, or 16.9% of revenues, in the corresponding period of 2024. This decrease was largely due to higher operating expenses and FX headwinds.

The company's investment in its future is evident in its operating expenses. Engineering, research, and development expenses increased by 29.5% in Q3 2025 and 46.7% year-to-date, reflecting continued investments in customer delivery capabilities and internally developed software, including AI technologies . Sales and marketing expenses, as a percentage of revenues, decreased to 7.0% in Q3 2025, demonstrating operating leverage from revenue growth and cost optimization. General and administrative expenses also decreased as a percentage of revenues to 21.0% in Q3 2025, reflecting cost optimization across corporate functions, even as absolute dollar amounts increased due to 2024 acquisitions .

Liquidity remains robust, with cash and cash equivalents totaling $338.6 million as of September 30, 2025, up from $334.7 million at the end of 2024.

Net cash provided by operating activities for the nine months ended September 30, 2025, was $30.7 million, an increase of $7.6 million year-over-year. The company's $30 million revolving credit facility remains undrawn and was extended to March 2028.

The Board's authorization of a $50 million share repurchase program, representing about 15% of the company's cash, signals management's confidence in the company's long-term prospects and belief that its shares are undervalued.

Operationally, Grid Dynamics is demonstrating strong momentum. The company achieved its highest-ever engineering billing headcount, adding five times more billable engineers in Q3 2025 than in Q2 2025, with similar levels expected in Q4 2025. This reflects strong demand and growth potential. The average revenue per person also grew by 4% sequentially in Q3 2025. The company's headcount reached 4,971 as of September 30, 2025, up from 4,298 a year prior. While the total number of customers slightly declined due to the rationalization of non-strategic accounts, the focus remains on high-value enterprise clients, with one customer accounting for 16.4% of Q3 revenue.

Outlook, Guidance, and Strategic Initiatives

Grid Dynamics' management is optimistic about its future trajectory, projecting continued growth and enhanced profitability. The company expects Q4 2025 revenues to be in the range of $105 million to $107 million, with non-GAAP EBITDA projected between $13 million and $14 million. For the full year 2025, the revenue outlook is set between $410.7 million and $412.7 million, representing a year-over-year growth of 17.1% to 17.7%. This revised full-year guidance, while slightly adjusted from earlier projections due to timing of project ramp-ups and impacts from two significant clients, is still underpinned by strong organic growth and a materially higher billable run rate expected by year-end, positioning the company favorably for 2026.

Management anticipates 2026 revenue growth to build on this higher baseline, providing a strong foundation for continued expansion and operating leverage. This confidence stems from several factors, including the longer duration of new programs, which are multi-quarter in nature and extend into 2026, and the increasing demand for AI initiatives. Grid Dynamics is also benefiting from its status as a preferred vendor for many of its top clients.

A key strategic objective for the next 12 months is to improve margins by at least 300 basis points. This will be achieved through a multi-pronged approach: efficiency improvements in higher-margin geographies, leveraging enhanced pricing with its AI offerings, rebalancing its portfolio of lower-margin business, and embracing AI-first initiatives internally. The company is not slowing down on technology investments, recognizing that these are crucial for long-term competitiveness. Instead, it is optimizing costs in less favorable locations, such as certain European Union zones affected by unfavorable exchange rates.

The "GigaCube strategy" continues to guide Grid Dynamics' growth, focusing on leveraging data and AI for client productivity, expanding its portfolio of accelerators, diversifying industry verticals (with strong growth in Finance and TMT), maintaining its "Follow the Sun" global delivery model, and strengthening hyperscaler partnerships. The company's AI-first approach, particularly through its GAIN model, is expected to drive favorable pricing and tangible ROI for clients, further supporting margin expansion.

Risks and Challenges

Despite a compelling growth narrative, Grid Dynamics faces several risks and challenges that investors should consider. Geopolitical instability remains a significant concern, particularly the ongoing military action in Ukraine and the broader geopolitical situations in Eastern Europe, including Armenia and Serbia. These events could disrupt service delivery, impair financial transactions, and necessitate further shifts in operations, potentially having a material adverse effect on the business .

The company is also exposed to foreign currency exchange rate risk, with approximately 51.8% of its combined cost of revenues and total operating expenses denominated in non-U.S. dollar currencies in Q3 2025 . Fluctuations in currencies like the Polish zloty, Indian rupee, and Mexican peso can impact income from operations, as demonstrated by the estimated $0.6 million negative impact from FX fluctuations on EBITDA in Q3 2025. While Grid Dynamics employs hedging programs, this risk persists.

Competition for skilled IT professionals is intense across its operating regions, posing a challenge to employee retention and potentially impacting gross profit margins. The company's strategy to rationalize its customer portfolio, while aimed at focusing on strategic clients, has led to a decline in the total number of customers, which requires careful management to ensure sustained revenue growth.

Furthermore, while Grid Dynamics' AI-first strategy is a key differentiator, the rapid evolution of AI technology and the competitive landscape necessitate continuous investment in R&D and talent development to maintain its technological edge. The market's shift from experimental AI projects to enterprise-scale implementations, while an opportunity, also demands robust execution and proven ROI delivery to secure and expand client engagements.

Conclusion

Grid Dynamics is at a pivotal juncture, transforming into an "AI-first" enterprise that is not merely adopting but actively shaping the future of digital transformation. Its deep-rooted expertise in AI and data, cultivated over more than a decade, provides a formidable competitive advantage in an increasingly AI-driven world. The company's strategic focus on its three AI horizons—AI-first delivery, Agentic AI at scale, and Physical AI—underpinned by its proprietary GAIN engagement model, positions it to deliver measurable, high-ROI solutions for Fortune 1000 clients.

The company's recent financial performance, marked by record revenues and a materially higher billable headcount, reflects the strong traction of its strategy. With a clear path to margin expansion through operational efficiencies and enhanced AI-driven pricing, coupled with a disciplined capital allocation strategy that includes a share repurchase program, Grid Dynamics is signaling confidence in its intrinsic value. While geopolitical and foreign exchange risks warrant attention, the company's expanding global footprint, strategic acquisitions, and deepening hyperscaler partnerships are building a resilient and diversified business. For discerning investors, Grid Dynamics presents a compelling investment thesis, driven by its technological leadership and its ability to translate AI innovation into tangible business outcomes and sustained financial growth.