DA Davidson Assumes Coverage of GitLab with Neutral Rating, $50 Price Target

DA Davidson initiated coverage of GitLab with a Neutral rating and $50 price target, citing fears of competitive threats from new GenAI coding tools. The stock has declined 22% YTD and is trading at a discount to growth peers. While expectations for Q2 results may not embed upside, the analyst prefers to wait for more signs of improving growth before becoming more constructive.

Investment firm DA Davidson has initiated coverage on GitLab (NASDAQ: GITL) with a Neutral rating and a $50 price target. The brokerage noted that while GitLab's discounted valuation is attractive, near-term growth drivers remain uncertain. This uncertainty is partly due to concerns about new generative AI coding tools that could pressure demand and potential shrinkage in enterprise developer headcounts.

GitLab shares have dropped approximately 22% year-to-date (YTD), compared to a 6% gain in the iShares Expanded Tech-Software ETF. The company guided to about $12 million of net new revenue for the fiscal second quarter, which was slightly lower than the $13 million reported a year earlier. Historically, GitLab has posted average quarterly beats of around $6 million, suggesting a "more typical beat and raise" this time. However, DA Davidson expressed little conviction about stronger upside due to recent business trends and field checks.

DA Davidson expects management to keep its guidance conservative, possibly lifting the full-year revenue outlook only by the size of the second-quarter beat. The firm noted that upside could come from the adoption of GitLab Duo, its AI-based toolset, but expects those benefits to show more prominently in the back half of the year.

On valuation, GitLab trades at roughly 26 times estimated 2026 free cash flow, compared to peers at 34 times. DA Davidson described the stock as "too cheap to ignore" and a potential takeout candidate, but with growth lacking near-term catalysts, the brokerage remains Neutral.

References:

[1] https://www.investing.com/news/stock-market-news/gitlabs-growth-outlook-keeps-da-davidson-on-sidelines-despite-cheap-valuation-4206848