Confluent is the IBD Stock of the Day for Wednesday. Shares of the data software player are flirting with a breakout beyond a 33.26 handle buy point amid a strong trading day for enterprise software.
Mountain View, Calif.-based Confluent offers data streaming software it describes as a central nervous system for a company's data. Walmart, eBay and Citigroup are among its customers.
Confluent stock has rallied 44% since it posted stronger-than-expected third quarter results on Oct. 30. Confluent stock was trading essentially flat year-to-date prior to its big recent run.
On the stock market today, Confluent stock rose 4.9% to close at 33.08. The stock is on track for its best close since March. Shares are gaining within a rising market for enterprise software Wednesday, after strong quarterly results from Salesforce continued a run of positive news for the sector.
Confluent Data Streaming Used By OpenAI
Confluent's recent rally kicked off after it reported earnings growth of 400% to an adjusted 10 cents per share. The company reported sales growth of 25% to $250 million for its September-ended quarter. Both numbers exceeded estimates.
For the full year, analysts now project Confluent earnings will surge to an adjusted 26 cents per share, up from 4 cents per share in 2023. Revenue is seen growing 23% to $958.9 million, according to FactSet.
Chief Executive Jay Kreps told analysts following the company's Q3 report that the results highlight Confluent's "prime position to win the $60 billion data streaming category."
Some analysts predict that the market will be helped by demand from generative AI, which requires companies to organize vast amounts of data to feed into AI models. Confluent is offering solutions tailored to that process.
OpenAI, whose ChatGPT product ignited the AI frenzy in late 2022, is a Confluent customer. Kreps said on the analyst call that OpenAI is using Confluent to "deliver real-time data streams." Confluent first revealed OpenAI as a customer following its fourth-quarter 2023 report but Kreps said OpenAI's use of Confluent has since expanded.
However, it has been an up-and-down year for Confluent.
Confluent's stock sank following its second quarter report in late July, when it gave a weaker-than-expected sales forecast. The slump prompted analysts at Barclays to write a defense of Confluent's AI opportunity in a detailed client note published Aug. 13.
"In the emerging new GenAI world, large language models need real-time data input to increase the relevancy of their answers, and only an architecture like Confluent's — with real-time streaming and real-time processing — can deliver this at scale," Barclays analyst Raimo Lenschow wrote in August.
Enterprise Software Gains Steam
On the October analyst call, Kreps said the company has been "very up-front" that AI won't immediately drive a jump in spending for data infrastructure. But the company sees a long-term opportunity with growing momentum.
This has been a common theme this year across enterprise tech, as analysts puzzle over the "generative AI waiting game."
In the meantime, the enterprise software market is heating up. Strong earnings results from companies such as Salesforce and Snowflake have helped a broader rally. Confluent's data software peer Elastic said it was seeing "continued momentum in GenAI" when it reported results Nov. 22.
The iShares Expanded Tech-Software ETF (IGV), which holds shares of more than 100 enterprise software players, has surged 20% since late October. The rally has more than doubled IGV's year-to-date gain.
Jefferies software analyst Brent Thill wrote last week that he expects a rally for software stocks to continue into 2025, helped by "improving fundamentals (and) accelerating AI monetization," among other factors.
Confluent is part of the Software-Database group tracked by IBD. The 22-stock group surged more than 20% in November and is ahead 2.5% so far in December.
Confluent Stock Technical Ratings
Confluent stock briefly broke out above the handle buy point in Wednesday trading. The stock is on track for its best close since March. However, Confluent's chart base is very deep, representing a 49% dip off its highest prices when shares bottomed out in August. That makes it riskier.
Meanwhile, Confluent stock holds a best-possible IBD Composite Rating of 99, according to IBD Stock Checkup.
IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
Further, Confluent's stock has an A Accumulation/Distribution Rating. The rating analyzes price and volume changes in a stock over the past 13 weeks of trading. Its current rating indicates more funds are buying than selling.
