Investing.com -- Morgan Stanley has initiated coverage on GitLab (NASDAQ:GTLB) with an "overweight" rating and a price target of $70, positioning the company as a key beneficiary in the growing DevOps/DevSecOps market.
As per analysts at Morgan Stanley, GitLab is well-placed to emerge as a consolidator in this fragmented market, as businesses increasingly look for platform-based solutions rather than relying on a series of specialized, individual tools.
This shift towards consolidation is being driven by rising costs associated with integrating multiple software solutions, as well as the need to improve productivity amid tighter IT budgets.
GitLab's platform is seen as comprehensive, covering the entire software development and delivery pipeline, from source code management to continuous integration and security features.
It is also positioned strongly within the realm of AI with its suite of AI-enhanced capabilities, known as "Duo," which includes tools for code suggestions, test generation, and vulnerability analysis.
Morgan Stanley analysts noted that GitLab’s ability to innovate rapidly within the AI space has allowed it to catch up with competitors like Microsoft (NASDAQ:MSFT)'s GitHub.
The report highlights that GitLab’s addressable market is currently valued at around $13 billion, expected to grow to $24 billion by 2027, driven by the company’s strong presence in key areas such as source code management and continuous integration/continuous delivery.
Over the long term, the company is expected to target an even larger market as it expands into additional segments such as IT service management and observability, allowing it to participate in the broader DevOps and security market that could reach $43 billion by 2027.
GitLab’s revenue is projected to grow at a compound annual growth rate (CAGR) of 26% through 2027, with market share gains and upsell opportunities playing a key role in this growth trajectory.
By 2027, GitLab is expected to see its operating margins nearly double to 16%, with free cash flow margins reaching 20%.
Despite these positive projections, Morgan Stanley also pointed out several risks, including potential competition from GitHub and the evolving role of AI, which could disrupt the traditional software development process.
Shares of the company were up 3.1% in pre-open trade.