Data software players that were hot picks as AI stocks last year are slumping this year. MongoDB shares sank last week, with investors bracing for software behemoth Oracle's report.
Data software stocks tanked last week as investors fretted a lack of AI-driven sales boost for most companies.
The Computer Software-Database industry group tracked by Investor's Business Daily lost 10.6% last week, according to MarketSurge, its worst week since March 2023.
MongoDB stock fell furthest, sinking 32% on the week following a disappointing earnings report. Data streaming company Confluent lost 13% on the week while search-focused database player Elastic closed roughly even, despite a positive response to its earnings.
The Software-Database category was a top performer last year. Investors bet that the vast data needs of AI applications would boost sales for software companies. But it has been a different story this year.
"In our view, the gen AI nirvana propagated by the enterprise software industry in 2023 has proven to be a revenue mirage this year," Monness Crespi Hardt analyst Brian White wrote in a client note Monday.
White's note previewed Oracle earnings, which are expected early next week. The database software giant's results will provide the latest test for whether data software players are benefiting from AI.
AI Stocks: Software 'Easy To Ignore' For Investors
MongoDB stock fell sharply after the company cut its fiscal year sales forecast in an earnings report published late Thursday. Even with an uptick early Monday, MongoDB stock is down more than 50% from a 52-week high around 509 reached in late February. The loss tacked onto a broader software sell-off, spurred in part by disappointing revenue results from Salesforce.
Jason Ader, an analyst with William Blair, cited common themes weighing on software players. Customers are scrutinizing the size of the deals they make with enterprise software companies, as well as the timing of those deals. Plus, it is "still too early to see material tailwinds to software businesses from gen AI," Ader told IBD in an email.
Software analysts at Evercore ISI, meanwhile, wrote Monday that software companies outside of cybersecurity are in a tough spot.
"While the AI nervousness seems a bit overdone when thinking long-term, the tactical reality is underperformance creates apathy and right now it's easy to ignore the space," wrote Evercore analyst Kirk Materne.
It could take some time for that change.
"To step back in, investors need to have better confidence that this is the last numbers cut — hard to have confidence in this given macro uncertainty," William Blair's Ader told IBD. "Also, timing of gen AI impact is still unknown — investors would like to have better certainty on this as well."
Watching Oracle Stock Ahead Of Earnings
Investors will be closely watching results for Oracle, the largest company in the Computer Software-Database category. The database giant just wrapped its fiscal fourth-quarter, ending with May. The firm has not announced an official date, but Oracle typically reports quarterly earnings the second Monday after its quarter closes.
Lackluster results for enterprise software providers are weighing on Oracle stock heading into its report. Shares lost 5% last week and are off about 10% from a high near 132 that followed its February-quarter earnings report.
But even as software companies scuffle, Oracle could benefit from a separate part of its business.
White, the Monness Crespi Hardt analyst, said there is a "tale of two cloud layers" for technology stocks. Companies providing cloud-based software have provided "uninspiring" March and April quarter results. But the major public cloud providers — Amazon and Microsoft — have seen a revenue boost from renting their servers to train large language models, such as OpenAI's ChatGPT.
Oracle plays in both layers, with its Oracle Cloud Infrastructure attempting to win public cloud share from market leaders Amazon Web Services and Microsoft Azure. Investors view OCI as the "main investment story" for Oracle stock, according to previous analyst descriptions.
Monness Crespi Hardt remains neutral on Oracle stock, however. White said the company "represents a high-quality tech company with the opportunity to participate in a cloud transformation; however, valuation has become less compelling, and we believe the darkest days of this economic quagmire are ahead of us."
AI Stocks: Leading Data Software Companies
Meanwhile, Oracle stock has formed a consolidation pattern with a 132.77 buy point, according to MarketSurge. Oracle stock ranks seventh in the 22-stock Computer-Software Database group, according to the IBD Stock Checkup tool. It has a middling IBD Composite Rating of 72 out of 99. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
Commvault Systems, which provides data security tools, leads the Computer Software-Database group with an IBD Composite Rating of 97 out of 99, according to IBD Stock Checkup. Data security firm Varonis Systems is second with a 91 Composite Rating. Elastic is fourth with a Composite Rating of 81.
MongoDB, meanwhile, ranks 16th out of the 22 stocks in the category. Shares were up about 3% in recent action on the stock market today, however. Guggenheim analyst Howard Ma upgraded MongoDB stock to neutral from a sell rating on Monday, saying the recent slide has MongoDB's shares at a fair value to its revenue and earnings estimates.
