Is GitLab (GTLB) a Buy Before Its AI-Powered Growth Story Reaccelerates?

In the ever-shifting landscape of technology investing, few stories have captured-and then lost-market attention as swiftly as GitLab's. The DevSecOps leader, once trading near $73 a share in early 2025, has seen its stock plummet 23.8% year-to-date, trading at $42.95 as of December 2025. Yet beneath the surface, the company's financials tell a different story: 25% year-over-year revenue growth, margin expansion, and a strategic pivot toward AI-driven tools that position it at the intersection of two of the most critical trends in software development. The question now is whether this pullback represents a strategic entry point-or a warning sign of overhyped expectations.

Earnings Strength and Margin Improvements

GitLab's Q3 FY 2026 results underscore its resilience. Total revenue hit $244.4 million, a 25% increase from the prior year, while non-GAAP operating margins expanded to 18% from 13% in the same period. This improvement reflects disciplined cost management and a shift to a hybrid usage-based pricing model, which aligns with the company's goal of capturing value from its growing user base.

Notably, GitLab's Dollar-Based Net Retention Rate remained robust at 119%, indicating that existing customers are not only staying but increasing their spending.

These metrics suggest a company that is not only surviving but thriving in a competitive market. However, the GAAP operating margin of (5)% highlights the challenges of scaling profitability in a high-growth SaaS environment. For investors, the key will be whether GitLab can sustain its margin trajectory while continuing to invest in AI-driven innovations.

AI-Driven Product Adoption: A Strategic Edge

GitLab's pivot to AI is not just a buzzword-it's a calculated move to address what the company calls the "AI paradox." While AI tools can generate code rapidly, they require rigorous validation to meet complex business requirements according to the company. GitLab's response? The expansion of its Duo Agent Platform, which integrates purpose-built AI agents and an AI Catalog for custom agent creation. These tools are already driving measurable engagement: for high-ARR customers, usage proxies like deployments and CI pipelines increased by 20%-40% annually.

The company's SaaS customer base also saw a 35%-45% year-over-year rise in key activity metrics, including CI pipelines and deployments. Such data points reinforce the argument that GitLab is not merely riding the AI hype train but embedding itself into the core workflows of developers and security teams. With over 50 million registered users and a client base that includes more than half of the Fortune 100, the platform's network effects are hard to ignore.

Analyst Optimism vs. Valuation Concerns

Despite these positives, GitLab's stock has lagged, trading at a discount to its peers. Its enterprise value-to-sales (EV/Sales) ratio of 5.97x is significantly lower than the tech sector average of 19.09x according to analysis, suggesting the market is pricing in caution. This discrepancy is partly due to mixed analyst ratings. While Rosenblatt Securities and Bank of America maintain "Buy" ratings with price targets of $58 and $72, respectively according to reports, others like Truist and DA Davidson have adopted more cautious stances, citing concerns about AI's market impact and valuation multiples as per analysis.

The stock's underperformance, however, may present an opportunity. At current levels, GitLab's valuation appears undemanding relative to its growth trajectory. For context, Microsoft trades at an EV/Sales of 10.99x according to data, while Palantir's 89.52x according to analysis highlights the wide dispersion in how the market values AI-driven SaaS companies. GitLab's EV/EBITDA of 38.25x according to analysis, though higher than the sector average of 68.35x according to data, still suggests a relatively conservative multiple for a company with 25% revenue growth.

Broader Sector Rotation and AI's Role

The broader tech sector has been a rollercoaster in late 2025. Indices like the Nasdaq 100 and S&P 500 Tech have swung between sharp declines and rebounds, driven by AI-driven volatility and expectations of a Federal Reserve rate cut. While the sector's forward P/E of 32x remains elevated, the rally in late November-spurred by Nvidia's record revenue and Alphabet's all-time highs according to market reports-suggests that AI remains a powerful tailwind.

For GitLab, the challenge is twofold: capitalizing on this AI-driven momentum while navigating a market that has grown wary of overvalued tech stocks. The company's recent strategic moves-such as the launch of the AI Catalog and the appointment of a new CFO according to reports-signal a focus on execution and operational discipline. If the broader sector stabilizes, GitLab's strong fundamentals could position it to outperform.

Conclusion: A Calculated Bet

GitLab's current valuation offers a compelling case for investors willing to bet on its AI-driven growth story. The company's financials demonstrate resilience, its product innovations align with critical industry needs, and its valuation multiples suggest it is undervalued relative to peers. While the stock's underperformance reflects broader market caution, the divergence between analyst optimism and market sentiment creates an asymmetrical opportunity.

For those who believe in the long-term potential of AI to transform software development-and in GitLab's ability to lead that transformation-the current pullback may be a strategic entry point. However, investors should remain mindful of the sector's volatility and the risks of overvaluation in AI-driven stocks. As always, the key will be balancing conviction with caution.