Morgan Stanley Just Slashed GitLab’s Price Target, Is the Developer Boom Finally Over?

When a software company’s earnings call takes place and the numbers are actually good, there’s a certain kind of unease that permeates the room. The most recent quarter for GitLab was not a catastrophe. Revenue reached $260.4 million, up 23% from the previous year. Earnings exceeded projections. Business clients were staying longer than they had in the previous four years. However, as the analyst notes accumulated over the next few weeks, it became clear that Wall Street was no longer buying the optimism.

Sanjit Singh of Morgan Stanley has been the most prominent voice during that retreat. He lowered his price target from $55 to $42 in January. He then made another cut to $29 in March following the fourth-quarter results, adding what the company now refers to as a “cautious” framing. Keep the rating the same, but lose the conviction. The language analysts use when they no longer believe is almost diplomatic. Equal Weight. Use caution. Hold on. The words you use when you don’t want to close a door but also don’t want to spend much time at the table.

However, one analyst isn’t the main focus of the larger narrative. It concerns what transpired with a type of business that appeared untouchable just two years ago. The picks and shovels of the AI economy were GitLab, GitHub, Snowflake, and JFrog. The wager was straightforward: in order to create and distribute AI-powered products, every business on the planet would require improved software development tools, and the platforms that assisted them would generate profits for years. The thesis might still turn out to be correct. The market is now discovering what “early” really costs, and it’s also possible that the timing was terribly off.

You can observe the disconnect in real time by scrolling through the comments section of any GitLab earnings report. Retail investors cite the four-year low in customer attrition, the 30% growth, and the Google Cloud partnership that was announced in mid-April. The institutional money, on the other hand, sees a completely different picture: negative net margins, a price-to-earnings ratio of negative 63, and insiders stealthily leaving. In March, director Matthew Jacobson sold 700,109 shares for $22.95. That was worth sixteen million dollars on its own. The disclosures continue to come in, nearly every week.

I believe that people are uneasy about how quickly this turned out. In the last year, GitLab’s price reached as high as $54. On Wednesday, it started at $22.15. The 50-day moving average is at $23.76, and the 200-day is at $34.62. This is a classic pattern of a stock that has reset rather than just declined. By the time it occurred, Bank of America’s downgrade in late April, which reduced the target from $58 to $27, didn’t even seem dramatic. It seemed long overdue. Guggenheim completely missed its target. Truist was reduced to $25. Wells Fargo reached $26. The sell-side appeared to let out a single breath.

This raises a larger question, which you hear mentioned in passing on CNBC, in Slack channels, and at the kind of dinner where a venture capitalist begins a sentence with “look, between us…” The question is whether artificial intelligence (AI), which was meant to help businesses like GitLab, is actually making them smaller. Does the platform layer below matter as much if a developer can ask Claude or Copilot to scaffold an entire feature? Perhaps. Governance, security, compliance, and the integrated workflow GitLab built its reputation on may still be necessary for enterprise teams. However, it’s possible that the value capture gradually moves to another location. Investors appear to think that risk is significant enough at this point to discount it into the stock.

In all honesty, GitLab is not flawed. It’s a good product. Adoption by enterprises is increasing. A few weeks ago, the Google Cloud expansion gave the stock a brief 7% boost, suggesting that positive news continues to move it. However, in any discernible way, the developer-tools boom of 2021 and 2022 is over. The next step is slower, messier, and most likely won’t reward the same playbook. Morgan Stanley isn’t quite ready to say whether GitLab is a $20 stock that finds its floor and rebuilds or a $20 stock headed somewhere lower. And the market is responding to that more than the price target.