While artificial intelligence giant Nvidia (NVDA) has electrified the stock market, shares of another tech player — software company Confluent (CFLT) — shot up by double digits this year. Now, as the company sees 325% profit growth in 2024, Confluent stock is rising as another option in the AI space.
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A recent surge in data streaming comes after Confluent closed out 2023 with stock price losses for five of the final six months of the year. This culminated with shares cratering more than 26% in November after the company projected fourth-quarter sales around $205 million at best. That was well below the $212 million analysts consensus forecast.
Concerns were all for naught, however, as Confluent on Feb. 7 reported that sales increased 26% to $213.2 million. The company also said it earned 9 cents per share in the fourth quarter, up from a loss of 9 cents per share a year earlier, and ahead of Wall Street estimates for 5 cents.
As a result, Confluent stock has surged more than 40% higher since the first of the year, already a sharp contrast to 2023’s overall gain of little more than 5%.
Meanwhile, the company projects 2024 revenue totaling $950 million, representing a 22% increase compared with 2023. Confluent also sees earnings ballooning 325% to 17 cents from 4 cents in 2023. Both sales and earnings are roughly in line with current Wall Street views.
“Our momentum is driven by our leadership of the data streaming platform category, which has become a requirement to deliver business critical use cases like connected customer experiences, cloud migrations and now real time generative AI,” Chief Executive Jay Kreps said on the company’s earnings call.
What Confluent Offers
Mountain View, Calif.-based Confluent works to help clients make faster decisions with data as it arrives, and sees itself as a “central nervous system” for tracking data in real-time.
Confluent offers clients a data management framework that results in “logs,” essentially a real-time list of data. It continuously updates that data as more arrives. The framework allows processes to be run on these logs as data is added. Further, it creates insights that clients can use to dynamically adjust their businesses.
The company’s clients include Instacart (CART) and Albertsons (ACI).
Confluent’s framework traces its origins to its predecessor, Apache Kafka. That’s a log-based framework created by CEO Kreps, Neha Narkhede and Jun Rao while they were working as engineers at LinkedIn. Narkhede serves on the company’s board and Rao is listed as an engineer.
The complexities of Kafka led the engineers to co-found Confluent in 2014. They planned to offer clients a complete, fully-managed package, as well as a cloud-based version. The company secured funding from Benchmark, Sequoia Capital, and LinkedIn itself. Confluent stock eventually went public in 2021.
The company currently offers Confluent Platform, a self-managed software program designed for on-premises enterprise work. It’s available on an annual or multiyear subscription. There is also Confluent Cloud, a fully managed cloud offering which has a pay-as-you-go model with no commitment. There are also annual and multiyear subscriptions for the service.
In 2021, Confluent Platform comprised 73% of the company’s subscription revenue while Confluent Cloud made up 27%. But analysts say that by 2027 that mix will flip. They see Confluent Cloud sales launching 1,100% from 2021 and making up 66% of subscription revenue.
Confluent Stock Catches The AI Wave
Confluent also has attracted investor attention for its potential use in artificial intelligence, helping sustain momentum in its stock. Investors see Confluent’s products, used to instantly make data-driven decisions, as the infrastructure for AI products.
Kreps told analysts and investors on the earnings call that Confluent continues to see “demand from customers who are building the next wave of generative AI applications,” which includes AI-powered procurement software, chatbots and coding platforms.
“We believe this represents a tremendous opportunity for Confluent as customers evolve from experimentation in the short term to production in the medium and long term,” Kreps said.
In the fourth quarter, Sam Altman’s OpenAI — the company behind ChatGPT — enlisted Confluent’s services. Altman hopes Confluent’s software will help improve ChatGPT’s visibility into customer usage patterns, Kreps said.
“This customer and others like it continue to validate the strategic role of data streaming in the generative AI landscape,” Kreps said.
Challenges And Competition For Confluent
At the end of third quarter, Kreps said the company faced “continuing macro pressure, including the ongoing conflict in the Middle East, where Israel is a top 10 country for us, and the possible U.S. government shutdown, both of which add uncertainty and disruption in particular segments.”
However, Confluent reported in a Feb. 21 regulatory filing that it believes markets outside of the U.S. “present a significant opportunity for additional growth of our business.”
Confluent views its primary competition as internal tech support teams at companies attempting to “do it themselves” using open source software. Confluent also sees competition in Amazon‘s (AMZN) Amazon Web Services, Microsoft (MSFT) and Google-parent Alphabet (GOOGL).
“As the move to the cloud increases, we expect that competition from open source alternatives will decrease as companies increasingly adopt fully managed cloud solutions,” the company said on Feb. 21.
Confluent Stock Performance
Confluent shares are on pace to log their fifth weekly gain in the past six weeks. The company currently sits on the IBD 50 list, as well as IBD Tech Leaders.
Stifel initiated coverage on Confluent stock on Feb. 20 with a buy rating and a 40 stock price target. The firm wrote that Confluent’s real-time data streaming platform plays “a pivotal role in the ongoing secular trend of modernizing data architectures as more companies view data as a core asset.”
Mizuho Securities on Feb. 16 also raised its price target on Confluent stock to 38, up from 34. The firm put a buy rating on it after a meeting with management. The financial group wrote it expects data streaming adoption will go much higher over the medium-term and beyond. It also views Confluent’s platform as best-in-class.
Meanwhile, Morgan Stanley analyst Sanjit Singh raised the firm’s price target to 34, up from 27. He also maintained an overweight rating on shares following earnings. Singh said Confluent has revenue upside and “better” operating profitability than in the past.
“Coming out of the quarter, we are feeling more constructive about the setup into 2024 and see a case for acceleration in 2025 given a better budget environment and expected contribution from Confluent’s upcoming production cycle,” Singh wrote.
Confluent stock ranks first in IBD’s Computer Software-Database industry group. CFLT has a best-possible Composite Rating of 99. Additionally, the stock has a 93 Relative Strength Rating and its EPS Rating is 81 out of 99.
Please follow Kit Norton on X, formerly known as Twitter, @KitNorton for more coverage.
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