Shares of MongoDB ( MDB ) fell on Thursday after Wall Street analysts downgraded their outlook on the database software company from a buy rating to neutral. UBS analysts said it was time to “take your foot off the accelerator” after MDB stock made impressive gains last year.
MongoDB emerged as the artificial intelligence favorite on Wall Street last year. Shares gained 108% in 2023. A case for momentum for the company, he argued, is that its database software will be for enterprises moving to the cloud and developing data-heavy generative AI applications.
But that will take some time, UBS analysts said in a client note.
“While we’re excited about the AI-driven database growth catalyst, we’re not picking up material evidence that it’s happening yet – it could be the catalyst for 2025, (second half) 2024 at the earliest, ” wrote UBS analyst Carl Keirstead.
In the stock market today, MDB stock fell 1.6 percent to 367.
Still ‘early days’ for AI spending
Further, big gains over the past year have put MDB stock on the expensive side. Shares are trading at market value at about 14 times analysts’ 2024 earnings estimates, UBS noted. Similar high-growth software stocks trade at an average of about 11 times expected sales, according to UBS.
“While we’re intrigued by the potential to gain from AI spending through a database bridge, given MongoDB’s current valuation multiple, we’re concerned that the potential AI lift could prove to be too modest and the stock to materially outperform. The time is too far to demonstrate. 2024,” Keirstead wrote.
More broadly, UBS found that companies are not yet ready to spend big on AI. A survey of enterprise software buyers released by UBS in December found that only 6% of respondents are in the production phase for a creative AI product, despite 100% of organizations saying they are investigating the use of AI. have been.
“We’re still in the early days of AI-related business spending,” Keirstead added.
MDB Stock: Recent Slide After Earnings Report
Still, MongoDB’s products are growing rapidly. The firm’s revenue of $1.2 billion for the nine-month period ending in October was up 32 percent from the same time frame in 2022.
But MDB stock is down about 15% since MongoDB’s fiscal third-quarter earnings report was published late Dec. 4. But sales growth for its main Atlas database product was slightly lower than expected.
MDB stock fell below its 50-day moving average on January 3, at the start of trading this year. Shares are also now well below a previous buy point of 412.67, according to IBD MarketSmith.