Morgan Stanley Begins Coverage of GitLab, Highlights Its Importance in DevOps Market Growth

Morgan Stanley has commenced coverage on GitLab with an “overweight” rating and a price target of $70, highlighting the company’s potential as a significant contender in the expanding DevOps/DevSecOps market.

According to analysts at Morgan Stanley, GitLab is strategically positioned to become a consolidator in this fragmented landscape, as companies increasingly favor platform-based solutions over a mix of specialized tools.

This trend toward consolidation is largely driven by increasing costs related to integrating various software solutions and the necessity to enhance productivity in light of tighter IT budgets.

GitLab’s platform is recognized for its comprehensiveness, encompassing the entire software development and delivery process, from source code management to continuous integration and security features.

Furthermore, GitLab is making strides in the AI domain with its array of AI-enhanced functionalities known as “Duo,” which includes features for code suggestions, test generation, and vulnerability analysis.

Morgan Stanley’s analysts highlighted that GitLab’s rapid innovation in AI has enabled the company to keep pace with competitors like Microsoft’s GitHub.

The report states that GitLab’s addressable market is valued at approximately $13 billion and is projected to grow to $24 billion by 2027, driven by the company’s strong foothold in critical areas such as source code management and continuous integration/continuous delivery.

In the long term, GitLab aims to capture an even larger market as it ventures into additional segments like IT service management and observability, thereby participating in the broader DevOps and security market that could reach $43 billion by 2027.

GitLab’s revenue is anticipated to grow at a compound annual growth rate (CAGR) of 26% through 2027, with market share expansions and upsell opportunities being significant drivers of this growth.

By 2027, it’s expected that GitLab’s operating margins will nearly double to 16%, with free cash flow margins hitting 20%.

Despite these optimistic forecasts, Morgan Stanley also acknowledged several risks, including potential competition from GitHub and the changing dynamics of AI, which could impact the traditional software development landscape.

In early trading, shares of GitLab increased by 3.1%.