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MongoDB Up 116% YTD Thanks to GenAI Transformation: Could it Go Even Higher?

Published 07/19/2023, 08:48 PM
Updated 07/09/2023, 06:31 PM
  • MongoDB shares are surging lately on the back of the GenAI transformation
  • Investor Day helped showcase the company’s great position AI age
  • Investors and analysts are bullish on the long-term growth prospects

MongoDB (NASDAQ:MDB) stock is having a great year. Following a sharp correction in the stock price last year, bulls have managed to recover about two-thirds of losses following the tech-fueled rally that is unraveling on Wall Street.

According to analysis from financial news publication The Tokenist, just ten companies accounted for 35% of the S&P 500’s market cap in March - largely fueled by AI. This faster-than-expected adoption of generative AI technology has played into MongoDB’s hands, with shares gaining as much as 40% in June on several important catalysts.

Massive Outperformance After Earnings

MongoDB shares erupted as much as 30% in the first week of June after the database software company reported much better-than-expected results and offered a very strong outlook for the second quarter. The company expects full-year EPS of $1.49 on revenue of $1.53 billion, an upward revision to the prior forecast for earnings of $1.04 on revenue of $1.495 billion.

“The continued strength in new business activity indicates the mission criticality of the MongoDB developer data platform and underscores that investments in innovation remain a top priority for customers," said Dev Ittycheria, President and Chief Executive Officer of MongoDB.

For this quarter, MongoDB’s forecast crushed analyst views, which were looking for a profit per share of 15 cents on revenue of $361 million. This is compared to the company’s outlook for EPS of $0.43-0.46 on revenue of $390 million.

The strong Q2 forecast, coupled with the massive Q1 outperformance, pushed shares sharply higher. The outlook signals a faster-than-expected recovery in the consumption trends and it could be that MongoDB is seeing strong tailwinds from its generative AI exposure.

"We believe the recent breakthroughs in AI represent the next frontier of software development. The move to embed AI in applications requires a broad and sophisticated set of capabilities while enabling developers to move even faster to create a competitive advantage. We are confident MongoDB's developer data platform is well positioned to benefit from the next wave of AI applications in the years to come," Ittycheria added.

For the first fiscal quarter, the company reported a profit per share of $0.56, crushing the $0.18 expected by analysts. Revenue rose 29% year-over-year to $368.3 million, again easily ahead of the analyst views. Subscription revenue was $354.7 million, with the company’s core business segment – Atlas (NYSE:ATCO) – seeing its revenue growth hit 40%.

MongoDB stock then continued to rally in the final days of the last month after the company held an investor event, where it unveiled a series of new products. Analysts who attended the event came away increasingly more positive about the company’s long-term growth prospects.

The company’s management presented at least 5 major products, including Atlas Vector Search, Atlas Stream Processing, the general availability of Relational Migrator, Queryable Encryption, as well as MongoDB Time Series Advancements.

For instance, the Atlas Stream Processing product allows the processing of high-velocity streams of complex data. The product offers three 3 key capabilities: Continuous processing, validation, and merge.

In addition to these announcements, MongoDB’s financial team also presented a series of new business metrics around the impact of new workloads on short-term and long-term growth.

Positioning For the Age of AI

During the investor event, the management’s tone surrounding GenAI was extremely positive. MongoDB sees itself as a major beneficiary of this revolution as, among other things,

AI will increase the volume and sophistication of applications. Moreover, MongoDB’s products, especially its document data model, are practically built for AI-fueled applications.

In this context, the biggest focus is on Vector Search, which is now integrated into Atlas. This product now allows MongoDB to address GenAI applications. According to the company, Vector Search is “designed to meet the demands of data in all forms and allow our partners to harness these incredible new capabilities.”

The product allows MongoDB Atlas users to query data based on semantics or the meaning of the data rather than the data itself. The GenAI has enhanced the quality of these vectors, which are now better positioned to “capture the meaning of data by projecting lower dimensional data into a higher dimensional space that contains more context about the data.”

“Many of the challenges inherent in harnessing AI and Vector Search stem from the complexity involved in safely and securely exposing your application data. These tasks add layers of friction to the developer experience and make your applications harder to build, debug, and maintain. MongoDB erases these challenges while bringing the power of Vector Search to a platform that organically scales vertically and horizontally to support practically any workload you throw at it,” the company said.

Investors seem to be incrementally positive about the company’s opportunity to become a go-to developer data platform fueled by the GenAI platform shift. In addition to Vector Search, MongoDB Atlas also allows its users to seamlessly integrate major GenAI applications, such as the hyperscalers and open-source LLMs (large language models).

A number of Wall Street analysts boosted their price target forecasts on MongoDB, further fueling a rally in MDB shares. For instance, Stifel analysts hiked their stock target to $420 per share and offered the following commentary after attending the event.

“New announcements were very well-received by the customers and partners we spoke with during the day. Overall, with the pace of new product introductions accelerating Mongo continues to solidify its leadership position among developer data platforms,” they said in a client note.

***

Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and artificial intelligence.

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