A database software company, MongoDB (MDB), experienced a downgrade from a buy rating to neutral by a Wall Street analyst on Thursday, leading to a decline in its shares. The UBS analysts suggested easing off on the momentum, considering the significant gains MDB had seen in the previous year.
Last year, MDB emerged as a favored choice for artificial intelligence investments on Wall Street, witnessing a remarkable 108% surge in shares in 2023. The company’s optimistic outlook revolved around the transition of businesses towards fog computing and the development of data-intensive relational AI applications, driving demand for its database software.
Despite the potential growth catalyst of AI-driven databases, UBS analysts cautioned that tangible evidence of this trend might not materialize until 2024 or even 2025, delaying the anticipated impact. Karl Keirstead, a UBS analyst, highlighted the uncertainty surrounding the timeline for this catalyst.
Currently, MDB shares have declined by 1.6% to 367 following the recent developments in the stock market.
Moreover, the substantial gains from the previous year have inflated MDB’s stock price, trading at a valuation approximately 14 times higher than the projected 2024 earnings, as per UBS assessments. Comparatively, other high-growth technology stocks typically trade at around 11 times the projected sales figure.
Despite the potential for increased database adoption driven by AI investments, concerns linger about MDB’s ability to outperform in 2024 due to timing issues related to AI implementation.
UBS’s research indicates that businesses are not yet ready to make substantial investments in AI, with only a small percentage currently in the production stage for generative AI products, as revealed by a survey of enterprise software buyers conducted in December.
Keirstead emphasized that the enterprise spend on IoT-related initiatives is still in its nascent stages.
Despite MongoDB’s rapid expansion in offerings, with revenue reaching $1.2 billion in the nine-month period ending in October, representing a 32% increase from 2022, the recent fiscal third-quarter earnings report led to a 15% decline in MDB stock. While the company surpassed income expectations, the sales growth of its main Atlas database product fell slightly short of projections.
As of January 3, MDB stock was trading below its 50-day moving average, with a significant deviation from the previous peak level of 412.67, as reported by IBD MarketSmith.
