MongoDB, the cloud-based database software provider, experienced a remarkable surge in its stock price, with a staggering 108% increase in 2023. This surge was driven by widespread optimism surrounding the company’s potential to benefit from the rising trend of generative artificial intelligence in enterprise software. However, one industry analyst believes that these anticipated benefits may take longer than expected to materialize and suggests that it is time for investors to consider taking profits.
UBS analyst Karl Keirstead recently downgraded MongoDB stock from Buy to Neutral and adjusted the price target from $475 to $410. As a result, MongoDB shares experienced a 1.9% decline in Thursday trading, settling at $366.33. This decline adds to the stock’s year-to-date decrease of over 10%.
Keirstead points out that the strong rally in MongoDB shares from the previous year has significantly elevated the company’s valuation. At its peak, the stock traded at an impressive 16 times the estimated revenue for 2024. Consequently, the analyst believes it is prudent to exercise caution and reduce bullish expectations.
Although Keirstead still recognizes MongoDB’s potential for long-term growth, with a projected 30% increase, he asserts that the stock’s valuation has likely reached its peak unless there is an unexpected surge driven by AI workloads in 2024.
The analyst also highlights the anticipation among investors that companies would increasingly shift their data to the cloud in preparation for AI-centric workloads. However, the timing of this transition remains uncertain.
Keirstead suggests that if there is indeed an acceleration in usage and enterprises begin re-engineering legacy apps onto modern MongoDB databases, the company stands to benefit. He expresses enthusiasm for the potential growth catalyst of an AI-driven database. Nonetheless, he cautions that there is currently no evidence of this process beginning and warns that it may not occur until 2025.
In conclusion, MongoDB stock faces a significant test as it grapples with the pressure to deliver on high market expectations and tackle potential hurdles relating to the timeline for AI adoption. Investors are advised to closely monitor the company’s progress in this evolving landscape.