Sustained growth and weaker prospects spell opportunity

Results from MongoDB Inc. NASDAQ:MDB AND GitLab Inc. NASDAQ: GTLB suggest a bubble is bursting in the AI ​​market that could impact names like Oracle Corp. NYSE: ORCL, Adobe Inc. NASDAQ: ADBE AND Microsoft Inc. NASDAQ:MSFT.

However, the bursting of a bubble does not mean the end of artificial intelligence; it’s just a reset of expectations. Results from both software companies reveal the strength of their offerings, but the guidance downplays price action and valuation.

Both driven towards growth, only lower than what analysts expected. It is not the fault of the two companies if they failed to meet the expectations of the most optimistic analysts; high double-digit growth and wider margins are positive. It may take some time for the market to regain confidence, but it will likely reach new highs.

We are still in the early days of the AI ​​revolution and there are solid prospects for growth, cash flow and profits. Core database product MongoDB is gaining traction as a must-have application for cloud users thanks to Atlas and will grow with the industry. Atlas is a fully managed database that manages and delivers MongoDB across cloud boundaries.

The latest news includes numerous implementations on Google Cloud, Amazon.com Inc. NASDAQ: AMZNAWS and Microsoft Azure, bringing the total to 117 cloud regions and providing greater leverage for future results.

MongoDB has a solid quarter: Guidance is cautious

MongoDB reported a solid fourth quarter, with revenue growing 26.8% over last year. The top line beats consensus by 500 basis points and surpasses last year’s 36% increase. Customer growth drives the strength and expansion of Atlas’ availability. MongoDB Atlas accounts for 68% of revenue and is gaining traction. Subscriptions led and increased 28% year-over-year (YoY), offset by a 1% decline in services.

Margin news is an area of ​​strength. Gross margin remained stable at 75% GAAP and 77% adjusted, but operating margin increased. Operating margin increased 500 basis points thanks to improved leverage despite increased spending and left adjusted net income and free cash flow well above expectations. Adjusted earnings came in at $0.86, or up 50%, and nearly doubled consensus, with FCF doubling to $50.5 million.

The guidance is the sweet spot on the news, even though revenue is expected to grow 15% this year. The bad news is that first-quarter and fiscal-year results fell well short of consensus, leading the market to revise its expectations. Given the outlook for cloud spending this year, the opportunity is that guidance is likely to be cautious. Cloud spending is expected to accelerate to +20%, with growth led by the three major players, Azure, AWS and Google. MongoDB is perfectly positioned to take advantage of this growth.

Analysts review targets for MongoDB: see double-digit growth

Analyst activity is intense following the fourth quarter release and guidance update, with more than a dozen of the twenty-five analysts tracked by Marketbeat posting revisions. The activity is mixed with several targets at a reduced price and some on the rise, but the outcome is bullish. Sentiment is consolidating from “Moderate Buy” to “Buy” with an update issued by DA Davidson, who raised his price target to $430 and close to the consensus.

The consensus target implies a 15% upside and trending higher, and is capable of leading the market now that the price action has corrected.

MongoDB price fell as much as 20% in after-hours trading, but recovered much of the loss before the open. The stock opened with a loss of just 7% and showed some support at the open. If the market seizes this opportunity, investors should expect volatility in the coming days, but the market should recover quickly. Otherwise, MongoDB could fall to firmer support levels around $360 before seeing a significant rebound later in the year.

Before you consider Adobe, you’ll want to hear it out.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Adobe wasn’t on the list.

While Adobe currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

View the five stocks here