Baird downgrades MongoDB rating due to Atlas growth concerns and AI revenue timing

Investing.com - Baird has downgraded MongoDB (NASDAQ:MDB) to Neutral, citing concerns over its Atlas growth trajectory, limited recent AI revenue, and management changes that could pressure the stock price.

The broker stated that Q4 results appeared solid on the surface, but Atlas revenue growth of 29% fell short of investor expectations and slowed from 30% in the previous quarter. Although growth should have been around 30% after excluding the impact of bundled sales, exceeding the company’s 27% guidance, investors have been expecting accelerated growth for a fourth consecutive quarter.

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Management guided first-quarter Atlas growth of 26%, with fiscal 2027 growth of 21% to 23%. Baird said there is potential for upward revisions but warned that further deceleration in Atlas could make it difficult for the stock to gain upward momentum.

The firm also noted increasing questions around artificial intelligence. Although MongoDB’s database platform is positioned to support generative AI applications, Baird said that aside from early use cases like Vector Search and Voyage embeddings, revenue contribution remains limited. During a period when investors are focused on potential AI-driven disruption, this could become a burden.

Baird also mentioned that concerns about competition could resurface, especially from private companies Databricks and Snowflake (SNOW) with their Postgres products.

MongoDB disclosed that Chief Revenue Officer Paul Capombassis and Chief Operating Officer Cedric Pech are set to leave. The company appointed Erica Volini as Chief Customer Officer. Baird said these changes increase market execution risk, especially as the company plans to invest in products and sales.

However, the broker also highlighted several positives. Remaining performance obligations increased 97% year-over-year to $1.47 billion, improving revenue visibility for fiscal 2027. Baird expects total revenue for FY2027 to grow around 20% or more, and noted that adjusted operating profit margins are approaching the company’s long-term target of 20%.

Baird slightly lowered its FY2027 revenue forecast from $2.89 billion to $2.88 billion, reflecting a modest reduction in expectations for Atlas, but raised its adjusted operating income estimate from $538.5 million to $553.8 million.

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