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MongoDB (NASDAQ:MDB) and Elastic (NYSE:ESTC) shares were in focus on Wednesday as Citi said it’s buying the pullback in enterprise software stocks, with the two among its top picks in the space.
MongoDB shares rose 4.1% wile Elastic was up around 0.5% in early trading. Year-to-date, MongoDB shares have fallen nearly 39% while Elastic shares have added 3%.
The first half of 2024 has not been kind to enterprise software, with a number of high-profile companies reporting weaker-than-expected results and cutting guidance, fueling fears that software demand is being eaten by the rise of artificial intelligence. However, Citi said it is taking a “glass-half full” view towards software and that many of the recent challenges are seasonal in nature and others are related to IT budget or interest rate “head fakes” coming into the year.
And while it’s clear that generative AI is leading to a re-prioritization in IT budgets (something that may hurt traditional software-as-a-service or seat-based models for some time), enterprise software could see a few different catalysts: a rise in IT budgets; a more favorable interest rate environment; and strong estimate revisions based on seasonality.
