Why Gitlab Stock Soared This Week

Software Development Platform Shares Gitlab (NASDAQ:GTLB) rose 17.8% in the week through Thursday trading, according to data from S&P Global Market Intelligence. The shares fell in Friday trading.

The Gitlab software development platform is seeing increasing interest in the age of artificial intelligence, which was reflected in its second-quarter results released Tuesday.

Overcoming and raising the bar all the way

In the second quarter, Gitlab grew revenue 31% to $182.6 million, with adjusted (non-GAAP) earnings per share of $0.15, up from just $0.01 a year ago. Both numbers clearly beat expectations. The company also raised its full-year guidance to $743 million at the halfway point, up from $735 million in the previous quarter, and raised its adjusted profit guidance from $36 million to $56 million. Adjusted operating margins increased an incredible 13 percentage points, from (3%) to 10%.

Gitlab’s success seems well-deserved; in recent years, the company has been recognized as the undisputed leader in terms of completeness of vision and ability to execute it. Gartner Magic Quadrant ratings for DevOps (development operations) platforms. This is impressive, as the company competes with other software development platforms as well as most of the well-funded cloud giants.

This may be due to Gitlab’s status as the only open-source and broadest cloud-agnostic enterprise DevSecOps software (development, security and operations) platform at scale, which certainly has some benefits. For example, the company has the freedom to incorporate any large AI language model it wants into its AI code assistants. Gitlab currently uses Anthropic’s Claude 3.5. And because it has scale and a broad set of customers, that data can feed its AI engine to improve its code development software. Sytse CEO Sid Sijbrandij noted during the call:

…you need a great model and great context. We’re vendor agnostic. We’re currently using the best model on the market for cogeneration, Anthropic Claude 3.5. And in terms of context, we know more about what the user is working on and what they’ve worked on in the past because we have the broadest platform, we have the most — more context and better context leads to better AI responses. So with that, we’re comfortable competing.

Gitlab is doing impressively, but it’s not a cheap stock

Gitlab certainly has impressive growth amidst its competitors, as well as good spending discipline leading to increased profits. However, with a turnover of 12.9 times sales, this growth is well-known in the market.

Gitlab will need to continue to grow at a rapid pace, with operating leverage, to justify such a valuation. But with $40 billion in addressable market, according to Sijbrandij, and a strong leadership position, Gitlab may be well on its way to achieving that goal.

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Billy Duberstein and/or his clients have no position in any stocks mentioned. The Motley Fool has a position in and recommends GitLab. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.