GitLab Stock: Between AI Vision and Reality

Despite record cash flow and a promising AI transformation, the GitLab stock price plummeted by over 30%. In this article, I will review my investment case and explain why I added to my position.

Jun 15, 2025

I have been invested in GitLab ( GTLB 0.00%↑) for about a year. The software company operates one of the world's most important IT platforms for DevOps and DevSecOps. If you are not familiar with the IT field, then these terms may be unfamiliar to you. If so, I recommend reading my “GitLab Investment Story” to learn more about this investment case.

Since the resignation of the charismatic CEO, Sid Sijbrandij, for health reasons at the end of 2024, GitLab shares have lost over one third of their value. The GitLab position in my sample portfolio on eToro is also in the red.

GitLab shares responded to the release of the latest quarterly results Q1 FY2026 with double-digit declines, once again underscoring the high valuation sensitivity of high growth stocks. These stocks are prone to crashing at the slightest disappointment of high expectations.

So there is good reason to thoroughly review my investment in GitLab in this article. Let’s get into it:

GitLab's financial figures for Q1 FY 2026

As of April 30th, 2025, GitLab increased revenue by 27% year-over-year to $214.5 million in the first quarter of fiscal year 2026. While this growth rate is slower than the 31% growth rate in fiscal year 2025, it is still solid, especially considering the challenging macroeconomic environment. Notably, GitLab increased its profitability significantly during this period.

Non-GAAP operating margin: +12% (previous year: -2%)
Non-GAAP net income: $29.4 million (previous year: $4.5 million)
Non-GAAP EPS (diluted): $0.17 (previous year: $0.03).
Dollar-based net retention rate (DBNRR): 122%

Another positive development is that GitLab is becoming increasingly important to large, financially strong customers. GitLab Ultimate now accounts for 52% of annual recurring revenue (ARR). GitLab Ultimate is GitLab's highest commercial product level and is specifically designed for large enterprises with high security, compliance, and governance requirements.

Compared to GitLab Premium and the free version, Ultimate offers the most complete functionality across all phases of the software development cycle. Customers only get access to the AI capabilities of GitLab Duo Enterprise with GitLab Ultimate.

SaaS now accounts for 30% of revenue and grew 35% this quarter. This profitable growth, coupled with the simultaneous transformation toward the cloud and AI, is impressive.

However, GitLab has yet to demonstrate that the new AI features are providing a tailwind for monetizing the platform. Investors were disappointed because they expected clearer signals in this regard.

GitLab Cash Flow: Strong Momentum with a Record Margin

Perhaps the most impressive figure in the quarterly report is found in the cash flow statement. GitLab generated $104 million in free cash flow — an increase of nearly 180% compared to last year ($37 million) — setting a new company record.

The corresponding non-GAAP adjusted free cash flow margin is 49%, establishing GitLab as a not only high-growth but also highly efficient software company. Based on this quarter, GitLab's Rule of 40 score (easily explained here) is 76%, which is outstanding. Seasonal effects have favored this figure, because traditionally high Q4 billings are received in Q1. However, the structural trend is verypositive.

In just 24 months, the free cash flow margin soared from -9% to +49%. This illustrates how exceptional software companies with substantial gross margins (nearly 90% for GitLab) can swiftly transform into cash-generating powerhouses once economies of scale are realized and investment ratios for development, sales+marketing, and administration decrease.

However, it should be noted that GitLab continues to pay above-average share-based compensation (SBC). This is not cash-effective and embellishes the cash flow statement. In Q1 of 2025, SBC accounted for 26% of revenue, which is considerably higher than the industry average. Nevertheless, shareholder dilution through the issuance of new shares has declined significantly, amounting to only 2% in the last 12 months.

Outlook for FY 2026

GitLab expects revenues between $936 million and $942 million for the current fiscal year. This implies growth of just under 25 percent for the full year. Thus, revenue growth is likely to be slightly lower than I expected a year ago.

Operating income (non-GAAP) is expected to increase to between $117 million and $121 million. This corresponds to a significant increase in profitability. Last fiscal year, 2025, the company earned $77.6 million in operating income (non-GAAP).

With over $1.1 billion in cash and securities, GitLab is in an extremely solid financial position. It has no debt and can grow both organically and through acquisitions.

GitLab vs. GitHub: Competitive Advantages Through Platform Depth and AI-Native Architecture

Many investors and developer teams compare GitLab directly with Microsoft's GitHub, which is understandable, as both solutions integrate code hosting, CI/CD (continuous integration and continuous deployment), and DevOps components.

For existing Microsoft customers, GitHub's bundling with other Microsoft products certainly gives them many reasons to opt for GitHub.

At the enterprise level, however, the wheat is separated from the chaff for customers who do not rely on a pure Microsoft stack. There are at least three key factors that differentiate GitLab:

Cloud neutrality and model freedom: GitLab runs on AWS, Azure, GCP (Google Cloud Platform) or on-premises. In contrast, GitHub is primarily embedded in Azure as a pure cloud platform.
AI-native platform with embedded contextual intelligence: Duo Enterprise integrates AI functionality into every step of the DevSecOps lifecycle, whereas GitHub's Copilot primarily focuses on code generation.
Dedicated SaaS instances and FedRAMP certification: Important public institutions, such as the FBI, want to remain independent of the cloud and rely on GitLab Dedicated running in their own data centers.

Strategic Relevance of GitLab Duo: AI is not just an Add-on; it is at the Core of the Platform

A look at current product development reveals GitLab's long-term ambitions. The latest version, GitLab 18, combines classic DevOps with deeply integrated security features and agentic AI functionality.

GitLab Duo is GitLab's AI-native product family that integrates AI throughout the DevSecOps lifecycle, from code generation to deployment automation.

Some highlights:

Duo Workflow offers multi-step automation designed to ease the daily workload of developers through Agentic AI (currently in beta).
GitLab Duo Pro and Duo Enterprise provide support through context-driven suggestions, test generation, refactoring, and root cause analysis.
GitLab Dedicated is now FedRAMP-certified, opening up large-scale contracts with the U.S. government.

These ambitious developments support my central investment thesis. GitLab is successfully evolving from a tool provider to a "software factory backbone" and is a technological leader, especially for the enterprise segment of its largest customers with highly regulated requirements, even in the AI era.

Valuation of GitLab shares

Revenue growth at GitLab is likely to slow by around 5 percentage points to "only" around 25% in fiscal year 2026.

A share price of $41 implies an EV/sales ratio of 6, based on expected revenue in fiscal year 2026. GitLab shares have never been cheaper since their IPO in 2021.

Compared to its peers, GitLab is certainly not overpriced.

For a SaaS company growing at 25% per year with a gross margin of nearly 90%, an EV/sales ratio of 6 is a fair valuation. In the coming years, it will be crucial to see if GitLab can stabilize its growth rate above 20%. In my opinion, the slowdown in growth from 36% in FY24 to 31% in FY25 and to what is likely to be 25% in the current fiscal year FY26 was a little too rapid.

This probably explains the sharp downward trend in the share price.

GitLab could achieve a higher valuation level if it can confirm the extremely high cash flow margin in the coming quarters. Cash flow was negatively impacted in the previous year by a large one-time payment following years of disputes with the Dutch tax authorities. This effect will no longer impact the cash flow statement in the current financial year.

Alphabet is Withdrawing as a Shareholder at GitLab

GV, the venture capital arm of Google's parent company, invested in GitLab many years ago, before it went public. GV owned Class B shares, which had 10 times the voting rights of Class A shares. After GV bought a significant number of GitLab shares in the first quarter of 2024, more than tripling its stake and becoming the largest shareholder, many observers (including myself) expected a possible takeover.

Alphabet's shareholding in GitLab (Source: Fintel.io)

However, Alphabet sold most of its GitLab shares in the past two quarters. While I am unaware of the reasons for this, one thing seems clear: a takeover of GitLab is apparently not (or no longer) planned.

Conclusion – A Structural Winner in the AI age

GitLab's solid results for the first quarter of fiscal year 2026 reinforce my investment thesis. The provider of the leading "AI-native DevSecOps platform" is evolving from a tool specialist into a strategically indispensable infrastructure partner for software-driven companies.

Even though the results in Q1 were solid but not outstanding. In my view, GitLab is well on its way to becoming the standard platform for modern, AI-enabled software development in the enterprise sector. I consider the stock to be one of structural growth and quality that is currently fairly valued — provided that you, like me, believe in the long-term relevance of a DevSecOps platform in the AI era.

I cautiously expanded my GitLab position at reduced prices following the Q1 results.

If you would like to follow GitLab's development with me in the future, subscribe to my 100% free SubStack here:

*Disclaimer: The author and/or related persons or companies own shares in GitLab. This article is an expression of opinion and does not constitute investment advice.