Why MongoDB Rallied This Week

Shares of database disruptor MongoDB (NASDAQ: MDB) rallied 17.7% this week through Friday as of 12:15 p.m. ET, according to data from S&P Global Market Intelligence.

MongoDB reported its fiscal first-quarter earnings on Wednesday, trouncing analyst estimates and showing some reacceleration from the prior quarter.

MongoDB has said that it would become an artificial intelligence (AI) winner once the "experimentation" phase ended and companies began to build AI-powered software applications. It looks like that may be starting now.

MongoDB gets its mojo back

Coming into this week, MongoDB was still wallowing in a severe downturn, having been more than cut in half since its 2021 highs and also its early 2024 highs. Revenue had been decelerating amid economic uncertainty, and management said that while it expects to see growth from the AI revolution, that growth wouldn't happen until AI moved from the experimentation phase to the application phase.

In the first quarter ending in April, MongoDB began to see some of those benefits. Revenue grew 22% to $549 million, fueled by consumption-based MongoDB Atlas growth of 26%. That overall revenue figure was well above expectations, as well as the prior guidance given by the company of $524 million to $529 million. Non-GAAP (adjusted) earnings per share of $1 nearly doubled, and trounced expectations by $0.34.

Management also raised full-year revenue guidance from $2.26 billion to $2.27 billion at the midpoint, and adjusted earnings-per-share figures from $2.51 to $3.03 at the midpoint.

On the conference call, MongoDB noted its net customer additions were the highest in over six years, especially self-serve customers. That's really impressive, and highlights AI developers turning to MongoDB as their go-to database to handle and organize the "messiness of the real world" within data connections.

Image source: Getty Images.

Is the stock a buy?

Software-as-a-service stocks are generally very expensive, but if MongoDB is in fact on the brink of an acceleration, it could be one of the best values in the space. After this week's surge, shares trade around 8 times this year's revenue guidance, which is expensive for a typical stock, but reasonable for a software stock. Of note, MongoDB also has a significant amount of cash on its balance sheet, at over $2.3 billion, good for 13% of its market cap, and no debt.

In terms of AI software plays, MongoDB looks like a promising opportunity, as the stock is still down markedly from its all-time highs.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends MongoDB. The Motley Fool has a disclosure policy.