Shares of MongoDB fell on Thursday after a Wall Street analyst downgraded its view of the database software company from a buy rating to neutral. UBS analysts said it's time to "take our foot off the accelerator" after MDB stock racked up impressive gains last year.
MongoDB emerged as a favorite artificial intelligence pick on Wall Street last year. Shares gained 108% in 2023. The bullish case for the company argued that its database software will be a go-to for enterprises migrating to the cloud and building data-heavy generative AI applications.
But that will take some more time, UBS analysts said in the client note.
"While we're enthusiastic about an AI-driven database growth catalyst, we're not picking up material evidence that this is playing out yet — it may prove to be a 2025 catalyst, (second-half) 2024 at the earliest," wrote UBS analyst Karl Keirstead.
On the stock market today, MDB stock fell 2.8% to 362.41.
Still 'Early Days' For AI Spend
Further, the big gains last year have put MDB stock on the expensive side. UBS noted that shares are trading at a market value roughly 14-times the analysts' 2024 revenue estimates. Similar high-growth software stocks trade at a median of about 11-times projected sales, according to UBS.
"While we're attracted by the potential for database pull-through from AI spend, given MongoDB's current valuation multiple, we're concerned the potential AI lift might prove to be too modest and timing too far out for the stock to materially outperform in 2024," Keirstead wrote.
More broadly, UBS found that companies aren't ready to spend big on AI just yet. A poll of enterprise software buyers released by UBS in December found that just 6% of respondents are in production phase for a generative AI product That's despite 100% of organizations saying they are investigating uses for AI.
"We are still in the very early days of AI-related enterprise spend," Keirstead added.
MDB Stock: Recent Slide After Earnings Report
Still, MongoDB's products have been growing rapidly. The firm's $1.2 billion in revenue for the nine-month period ending in October is up 32% from the same time frame in 2022.
But MDB stock is down about 15% since MongoDB's fiscal third-quarter earnings report published late Dec. 4. The company topped expectations for earnings and overall revenue. But sales growth for its main Atlas database product was slightly lower than expected.
MDB stock fell below its 50-day moving average at the start of trading this year, Jan. 3. Shares are also now significantly below a former buy point of 412.67, according to IBD MarketSmith.
