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

GitLab (GTLB) shares have underperformed year-to-date due to concerns over growth sustainability amid AI competition and costs associated with its JiHu joint venture, though recent partnerships and AI advancements have provided some recovery. Despite these headwinds, GitLab projects fiscal year 2026 revenues of $936-$942 million, representing a 24% year-over-year increase, and non-GAAP earnings of 68-72 cents per share, supported by its comprehensive DevSecOps platform and deepening alliances with Amazon Web Services and Google Cloud. The company's top-tier subscription, GitLab Ultimate, now accounts for 50% of annual recurring revenue, driven by demand for its security and compliance features.

Analysis

GitLab (GTLB) shares have demonstrated significant underperformance year-to-date, declining 14.8%, which contrasts sharply with the Zacks Computer and Technology sector's 1.3% dip and the Zacks Internet Software industry's 7% gain, and markedly trails peers such as ODDITY Tech Ltd. (ODD) with its 71.2% return. This share price weakness is attributed to mounting concerns over GitLab's capacity to sustain growth amidst intensifying AI competition, a softening of enterprise demand due to prevailing economic conditions, and persistent costs associated with its JiHu joint venture, which continues to impact margins without a clear deconsolidation strategy. Despite these headwinds, GitLab reports continued strong enterprise demand, advancements in its AI offerings like GitLab Duo and the upcoming GitLab 18, and a solid, expanding customer base. The company's comprehensive DevSecOps platform, supported by a broad product portfolio and strategic alliances, including deepened ties with Amazon Web Services (AWS) and expanded integrations with Google Cloud, underpins its long-term growth prospects, contributing to a recent 1.8% share price increase in the past month. For fiscal 2026, GitLab projects revenues between $936 million and $942 million, representing an approximate 24% year-over-year growth, aligning with the Zacks Consensus Estimate of $936.51 million (23.35% YoY growth). However, fiscal 2026 non-GAAP earnings are guided to 68-72 cents per share, with the consensus at 70 cents, indicating a potential year-over-year decline of 5.41%. The company's top-tier subscription, GitLab Ultimate, now accounts for 50% of its total annual recurring revenue, highlighting demand for its integrated security and compliance features. The Zacks Rank #2 (Buy) reflects a positive view based on these enterprise demand, AI innovation, and partnership strengths.

Key Decisions for Investors

• Investors should carefully evaluate GitLab's significant YTD underperformance and ongoing concerns regarding AI competition and JiHu JV costs against its robust FY26 revenue growth guidance of approximately 24% and positive developments in AI and cloud partnerships.
• Particular attention should be paid to the forecasted FY26 non-GAAP EPS decline of 5.41% year-over-year, which may signal margin pressures or increased investment spending despite strong top-line growth.
• Monitor the progress of the JiHu joint venture's impact on margins, the market traction and monetization of AI-powered tools like GitLab Duo, and the realized benefits from strategic alliances with AWS and Google Cloud.
• While the current Zacks Rank #2 (Buy) is a positive indicator, investors should weigh the company's long-term value proposition in the DevSecOps market against the near-term earnings contraction and existing market headwinds before making investment decisions.