Why Gitlab Shares Soared This Week

Software development platform actions Gitlab (GTLB -5.02%) rose 17.8 percent for the week through Thursday’s trading, according to data from S&P Global Market Intelligence. Shares were down in trading on Friday.

Gitlab’s software development platform has taken off in the age of AI, which was reflected in its second-quarter results reported on Tuesday.

A beat and a lift all over

In its 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 last year last. Both figures easily exceeded expectations. The company also raised its full-year guidance to $743 million at the midpoint, from $735 million in the previous quarter, and raised its adjusted profit estimates from $36 million to $56 of millions of dollars. Adjusted operating margins expanded an incredible 13 percentage points, from (3%) to 10%.

Gitlab’s success seems well-earned; was named an outright leader for completeness of vision and ability to execute in the latest Gartner Magic Quadrant Ratings for DevOps (Development Operations) Platforms. That’s impressive because the company competes with other software development platforms as well as most well-funded cloud giants.

This could be due to Gitlab’s status as the only open-source enterprise software and the broadest cloud-neutral DevSecOps (development, security and operations) scale platform, which certainly brings some advantages. For example, the company is free to incorporate any big AI language model it wants into its AI code assistants. Today, Gitlab uses Claude 3.5 from Anthropic. And because it has scale and a wide set of customers, that data can feed its AI engine to improve its code development software. Sytse CEO Sid Sijbrandij noted on the call:

… you need a great model and you need a great context. We are vendor agnostic. Today, we use the best model on the market for cogeneration, the Anthropic Claude 3.5. And context-wise, we know more about what a user is working on and what they’ve worked on in the past because we have the broadest platform, we have the biggest — more context and better context leads to better AI responses good So along with that, we feel comfortable in the competition.

Gitlab performs impressively, but it’s not a cheap stock

Gitlab is certainly seeing impressive growth amid the competition, along with a nice discipline on spending, leading to an inflection in profits. However, trading at 12.9 times sales, this advantage is well recognized by the market.

Gitlab will need to continue to grow at a strong rate with operational leverage to justify this kind of valuation. But with an addressable market of $40 billion, according to Sijbrandij, and a strong leadership position, Gitlab could very well be on its way there.