GitLab Declines 15% YTD: Should You Buy the Stock on the Dip?

GitLab (GTLB) shares have underperformed year-to-date due to AI competition and economic headwinds, but the company anticipates revenue of $936-$942 million for fiscal year 2026, representing 24% year-over-year growth. The company's prospects are bolstered by its comprehensive DevSecOps platform, with GitLab Ultimate now accounting for 50% of annual recurring revenue, and strategic partnerships with Amazon (AMZN) and Alphabet (GOOGL) that enhance its AI capabilities and market reach. Despite margin pressures from its JiHu joint venture, GitLab's strong enterprise demand and AI-driven innovation support a Zacks Rank #2 (Buy) rating.

Analysis

GitLab's (GTLB) stock has demonstrated significant underperformance year-to-date, declining 14.8%, starkly contrasting with the Zacks Computer and Technology sector's 1.3% decline and peer ODDITY Tech Ltd.'s (ODD) 71.2% gain. This share price weakness is attributed to concerns over sustaining growth amidst heightened AI competition, softening enterprise demand linked to economic conditions, and increasing costs from its JiHu joint venture, which continues to impact margins without a clear deconsolidation plan. Despite these pressures, GitLab has provided a positive outlook for fiscal 2026, projecting revenues between $936 million and $942 million, a year-over-year growth of approximately 24%, closely aligning with the Zacks Consensus Estimate of $936.51 million. However, the company's fiscal 2026 non-GAAP earnings are anticipated to be 68-72 cents per share, with the consensus estimate at 70 cents suggesting a 5.41% year-over-year decline, a notable divergence from its revenue growth trajectory. GitLab's strategic strengths lie in its strong enterprise demand, its comprehensive DevSecOps platform where the GitLab Ultimate subscription now accounts for 50% of total annual recurring revenue, and ongoing AI-driven innovation, exemplified by GitLab Duo and the upcoming GitLab 18. Furthermore, deepening partnerships with major cloud providers, including Amazon Web Services (AWS) for GitLab Duo integration with Amazon Q, and expanded integrations with Alphabet's Google Cloud, are expected to bolster its market position. The stock has seen a modest 1.8% rise in the past month, and the company currently holds a Zacks Rank #2 (Buy), indicating a favorable view from the rating agency despite the outlined challenges.

Key Decisions for Investors

• Investors should evaluate GitLab's current valuation in light of its Zacks Rank #2 (Buy) and the significant stock price decline, considering it a potential opportunity if they are confident in the company's projected 24% revenue growth for FY26 and its AI product roadmap.
• Closely monitor any announcements or financial disclosures related to the JiHu joint venture, as its ongoing costs and lack of a deconsolidation plan present a material risk to margin improvement and overall profitability.
• Scrutinize the drivers behind the forecasted 5.41% year-over-year decline in non-GAAP EPS for fiscal 2026, particularly in the context of strong revenue growth, to understand the implications for cost structure and investment intensity.
• Track the adoption rates and market reception of GitLab Duo and other AI-enhanced features, as well as the tangible benefits derived from partnerships with AWS and Google Cloud, as these are critical to sustaining competitive advantage and achieving long-term growth objectives.