GitLab is a Leader in AI-Supported Software Development - Earnings Surprise in Q2 Boosts the Stock!
GitLab (GTLB) provides a comprehensive DevSecOps platform to replace individual point solutions with a solution for AI-supported software development. Security and compliance can be integrated directly at an early stage with this approach, which is becoming increasingly important, especially in strictly regulated industries. According to Gartner, 75% of 25% in 2023 will have already switched from individual point solutions to DevOps platforms by 2027. Lockheed Martin is a good example here, where consolidation with GitLab makes the process of testing and deploying software (CI pipeline builds) 80 times faster. With over 40 million registered users and a 19% increase to 9,314 base customers, demand in the $40 billion market is robust. Co-founder and CEO Sid Sijbrandij emphasized again: "Companies need to deploy software faster to accelerate their performance and respond to intense competition."
AI is also becoming increasingly common, with GitLab just recognized as a leader in the first-ever Gartner Magic Quadrant 2024 for AI Code Assistants. The number of platform development teams using AI to improve each phase of the software development cycle is expected to increase from the current 5% to 40% by 2027. Thanks to the general availability of the GitLab Duo Enterprise add-on, AI can be prompted to generate, complete, explain and test code via a natural language chat interface. The offering has been proven to reduce the time required for toolchain operations by - 90%, shorten lead time by 50% and also speed up vulnerability detection by 50%. Well-known companies such as Barclays and F5 are now equipping their developers with it.
With a 31% increase in sales in Q2 and, in particular, a 1,300 basis point increase in operating margin and an accompanying earnings surprise of $0.15 per share (consensus: $0.10), there are new tailwinds. The total order backlog grew by 51% to $747.9 million. For the current fiscal year 2025, management has raised its sales forecast from $733-737 million to $742-744 million, signaling growth of over 28%. The new earnings forecast is particularly impressive at $0.45-0.47 per share (consensus: $0.36). This means that GitLab is already close to its previous target of $0.52 per share for the following year. The trend could now be reversed with relative strength in the generally weak tech sector.
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