This Will Be the 'Year of Agentic AI.' Analyst Shares His Top Pick to Play the Trend. -- Barrons.com

Dow Jones01-16

By Mackenzie Tatananni

Artificial intelligence will likely remain a "compelling secular theme" in 2025, but GitLab appears to be strides ahead of the competition, Macquarie analyst Steve Koenig said on Wednesday. He reiterated an Outperform rating on the stock and named it his top software pick for the year.

Koenig maintains a price target of $90 on the shares, indicating a potential upside of 47% from Tuesday's close. GitLab stock was up 3.5% to $63.39 on Wednesday.

The analyst's optimism stems from factors including the perception of a significant valuation discount that makes the company "a valuable and strategic financial asset."

In Koenig's view, GitLab should also benefit from the sustained enthusiasm for AI. The company's Duo offering, a suite of AI-powered tools within the GitLab platform, assists developers with tasks like code writing and security checks.

The software company also unveiled a partnership with Amazon Web Services in December, combining Duo with Amazon Q's AI agents, which rely on patterns to make decisions and operate without constant human interaction.

With 2025 being "the year of agentic AI," as Koenig puts it, GitLab will benefit from having the partnership on its roster. The joint offering advances GitLab's "agentic AI agenda" beyond code creation to a range of use cases, including testing, security reviews, and code modernization, Koenig said.

While GitLab must compete with Microsoft subsidiary GitHub, Koenig said that the company has carved out a niche.

GitLab offers "a platform that is highly differentiated from its larger competitor," deriving value from its ability to meet enterprise-level workloads and other strengths, Koenig wrote.

As for the larger software sector, Koenig expects software stock fundamentals to remain generally positive in 2025, though they may be accompanied by bouts of volatility following a sharp run-up in valuations since mid-2024.

While the upbeat sentiment should persist, "supported by improved revenue trends and optimism on agentic AI," Koenig anticipates a shift in focus from generative AI to agentic AI.

For investors looking to capitalize on agentic AI as a secular theme, Koenig suggests Salesforce and Atlassian, which were up 0.1% and 2.5%, respectively, on Wednesday. The stocks are "well-placed to benefit from agentic AI by driving adoption in their customer bases," Koenig said.

Macquarie maintains Outperform ratings on Autodesk and Datadog, and Neutral ratings on Salesforce, MongoDB, and Atlassian.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

 

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January 15, 2025 14:49 ET (19:49 GMT)

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