What happened
Shares of MongoDB (MDB 7.69%) were moving higher today after the database software specialist got an analyst upgrade, and seemed to benefit from a weaker-than-expected inflation report.
As a result, the stock was up 10.2% as of 12:10 p.m. ET on Wednesday.
So what
Morgan Stanley upgraded its rating on MongoDB from equal weight to overweight after a survey showed that 73% of respondents are actively engaged with cloud optimization initiatives, which the analyst sees as an opportunity for MongoDB to gain market share and pivot to profitability.
The analyst also expects the headwinds from its shift to its cloud-based Atlas product should be largely finished by 2024. Morgan Stanley raised its price target on MongoDB from $230 to $270, representing 28% upside from its closing price last night.
Separately, the stock seemed to benefit from a weaker-than-expected inflation report as the Consumer Price Index rose just 0.1% from February to March and increased 5% year over year, its slowest yearly growth in nearly two years.
Like other tech stocks, MongoDB shares have fallen sharply over the last year and a half as rising interest rates have pressured valuations for high-growth, unprofitable software stocks. Falling inflation could help persuade the Federal Reserve to stop hiking interest rates, and we'll learn more from the Fed on May 3.
Now what
MongoDB is still delivering solid growth, with revenue up 36% in its most recent quarter, but the company remains unprofitable on the basis of generally accepted accounting principles (GAAP), though it has started to post an adjusted profit.
Still, as the leader in non-relational databases (which store data in a non-tabular form, and tend to be more flexible than the traditional database structures), MongoDB has a bright future ahead of it. The stock still trades at a pricey valuation, but if it can keep posting strong top-line growth, its valuation shouldn't be a problem over the long term.
