Confluent stock tumbled more than 30% Thursday after a letdown second-quarter earnings report. Confluent has positioned itself as a beneficiary of AI, so its deep slide was particularly notable on a day when strong results from Microsoft and Meta Platforms powered a broader rally for AI stocks.
The actual results from Confluent met or exceeded expectations. But a a so-so outlook appears to have let investors down. Analysts with Stifel downgraded Confluent to a hold call from buy in response to the results.
"Continued cloud usage optimization, slower net new workload activity, lackluster new customer adds and an AI customer that is moving from cloud to self-managed platform creates meaningful cloud growth headwinds in coming quarters," Stifel analyst Brad Reback wrote.
On the stock market today, Confluent stock is down 32.7% at 17.76 in recent trades. That's despite a strong overall day for the S&P 500, helped by gains from Meta and Microsoft. The two tech giants reported strong earnings results that Wedbush analyst Dan Ives called a "watershed moment for the AI revolution" in a note to clients on Thursday.
Confluent Stock: Rough Year For Potential AI Pick
Confluent offers data streaming software, which it describes as a central nervous system helping enterprises to rapidly move and sort data. The 10-year-old company has the attention of some investors as an artificial intelligence play, given the huge data demands of generative AI models.
But Wednesday's earnings report is the latest setback in a bumpy year for Confluent stock. Its closely-watched Confluent Cloud subscription business grew sales 28% for the June quarter, which Barclays analyst Raimo Lenschow said was the first time in company history that sales growth dipped below 30% for the segment.
"(Confluent) was one of a few that lowered fiscal-year guidance post Q1, and this quarter only the low-end of guidance was raised a little, which will likely not be seen as a sign of strength, in our view," Lenschow wrote.
Cloud "Optimization"
Confluent Chief Financial Officer Rohan Sivaram told analysts on a conference call Wednesday that some customers were "optimizing" their consumption-based spending on Confluent Cloud. Consumption revenue refers to a sales model that charges based on total usage of the software.
An "AI-native customer" is shifting to self-managed internal data platforms, Sivaram added. That will lower Confluent Cloud's growth by "low-single digits" starting in the fourth quarter.
Overall, Confluent said that it earned an adjusted 9 cents per share for its June-ended quarter, ahead of consensus analyst estimates for 8 cents per share. The company's revenue increased 20% year over year to $282.3 million, compared to estimates of $278.4 million, according to FactSet.
Subscription-based revenue from Confluent's software increased 26% to $270.8 million, ahead of estimates of $267.6 million. For the current quarter, Confluent guided for subscription revenue of $281.5 million at the midpoint of its given range, roughly in-line with analyst consensus.
Some analysts remain bullish. William Blair analyst Jason Ader reiterated an outperform call for Confluent stock following the report.
"We appreciate investor frustration with the company's inconsistent execution and difficulty forecasting its business; that said, we are not yet ready to throw in the towel given the low valuation and multiple long-term growth drivers, including increasing demand for real-time data streaming, Confluent's product set expansion, and emerging generative AI tailwinds."
Barclay's Lenschow also stuck with a positive overweight call. But he said Confluent will likely return "to the low end of the trading range" for some time.
Confluent Stock Dives Beneath 50-Day Moving Average
Confluent's results appeared to weigh on shares of other specialized data software players Thursday. Datadog was down 4% at 142.84 in recent action. Elastic was down 2% at 86.12.
Confluent was already down 5% year-to-date heading into the report. But shares had recovered to above Confluent's 200-day moving average earlier this month, after roughly three months below the key long-term support level.
But Confluent's tumble on Thursday has pushed it well below its 200-day line, as well is 21-day and 50-day moving averages. Shares are hovering near Confluent's lowest levels since August 2024.
Coming into the report, Confluent stock had an IBD Composite Rating of 68 out of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
