Hook & thesis
Don’t confuse social-media panic about ‘‘vibe-coding’’ and AI FOMO for a durable fundamental problem at GitLab. The company reported 3Q FY2026 results (period 08/01/2025-10/31/2025, filed 12/03/2025) that show clear operational improvement: quarterly revenue of $244.4M, gross profit of $212.1M and an operating loss that has shrunk to -$12.4M. The selloff has pushed the share price to the mid-$30s after a run to the low $70s last year. That compression, not deterioration in the core business, is what I see as the buying opportunity.
My trade idea: buy on weakness into the mid-$30s with a defined stop and upside targets based on reasonable multiple re-rating and reversion toward prior cycle highs. This is a tactical long - play the positive operating trajectory while keeping position sizing small to account for headline-driven volatility.
What GitLab does and why it matters
GitLab is a single-application DevSecOps platform aimed at replacing stitched-together point solutions by delivering source control, CI/CD, security scanning, and release management in one codebase and unified interface. The market cares because enterprises are increasingly looking to reduce integration overhead, accelerate delivery cycles, and bake security earlier into development lifecycles. That profile maps to higher wallet share inside engineering organizations if GitLab can convert customers to broader usage.
Competition is real - Microsoft (GitHub) is the obvious scale incumbent - but GitLab’s single-app architecture and focus on enterprise DevSecOps give it a defensible product positioning for customers wanting an integrated lifecycle platform.
Recent numbers that support the buy thesis
- Revenue momentum: Q3 FY2026 revenue came in at $244.353M (08/01/2025-10/31/2025). That follows $235.96M in Q2 and $214.509M in Q1, showing consistent sequential growth and a clear acceleration vs earlier quarters.
- Profitability trajectory: Gross profit in Q3 was $212.132M while operating income loss narrowed to -$12.356M from larger losses earlier in the fiscal year (Q1 operating loss -$34.61M; Q2 -$18.351M). GAAP losses are moving toward breakeven, which matters more for a software platform with high gross margins.
- Operating cash flow positive: Net cash flow from operating activities was $31.428M in Q3 (still variable quarter-to-quarter but consistently positive in recent reported periods), which supports investment in R&D while limiting the need for dilutive financing in the near term.
- R&D and product investment remain healthy: Q3 R&D expense was $68.715M, which is consistent with GitLab’s strategy to keep innovating on DevSecOps and AI features to retain and grow enterprise footprints.
- Balance sheet: As of the quarter, total assets were $1.571B and equity was $968.0M against liabilities of $602.8M - a clean balance sheet that gives the company runway for continued product investment or opportunistic M&A.
Valuation framing - how I think about the price today
The market snapshot shows shares trading around $36.38 on the most recent print, well off the 52-week highs near $72.75. GitLab’s most recent quarter annualized implies roughly $0.98B revenue run-rate (Q3 × 4 ≈ $977M). Using diluted average shares of ~167.4M as a proxy for share count and the current price, a rough market-cap estimate is about $6.1B (167.4M × $36.4 ≈ $6.1B). That implies a revenue multiple around ~6x on a run-rate basis.
Contextual logic: high-growth DevOps/DevSecOps peers historically trade at materially higher revenue multiples because of scale and margin leverage. Part of GitLab’s multiple compression reflects headline volatility and re-rating in the software space, not a sudden fundamental deterioration. If GitLab executes and progresses toward sustained operating profitability while continuing mid-to-high-teens revenue growth, a multiple re-rating back toward the mid-teens could drive the stock meaningfully higher. That’s the upside scenario behind the trade.
Trade plan (actionable)
Position type: tactical long (swing, 4-12 weeks) with a portion held for a position-sized run if catalysts confirm.
Entry: stagger buys 1) 36.0-37.5 (base) 2) add tranche 33.5-35.0 if weakness continues
Stop: 30.0 (hard risk stop; ~17% below current price) — reduce to 32.0 if scaled in at lower tranches
Targets: T1 = 48.0 (near-term technical resistance / ~1.3x current) T2 = 65.0 (reversion toward prior swing highs)
Position sizing: keep initial allocation small (max 2-3% portfolio exposure) given headline-driven risk.
Catalysts that could drive the trade
- Product momentum / AI features: continued adoption of AI-assisted developer workflows and agentic features embedded into GitLab that increase platform stickiness.
- Better-than-expected guidance: management giving revenue/upside guidance that shows durable enterprise bookings or larger deal sizes.
- Margin expansion: operating income turning positive on sustained basis or clear path to positive operating margins, validating the cost structure and highlighting operating leverage.
- Partnerships / platform integrations that accelerate customer conversion from point tools to a single-platform solution.
Risks and counterarguments
Make no mistake: this is not a risk-free trade. Below are concrete reasons this could go wrong.
- Competition pressure: Microsoft (GitHub) has scale and deep enterprise relationships. Aggressive pricing or feature parity could slow GitLab’s net-new customer growth or renewals.
- AI commoditization risk: If core developer tooling and AI copilots are commoditized and embedded across ecosystems (cloud providers, IDEs), GitLab may struggle to capture incremental pricing power despite product improvements.
- Execution on enterprise expansion: The thesis depends on upsells and enterprise wallet-share capture. If customer conversion stalls, revenue growth could decelerate, leaving the multiple unjustified.
- Sentiment-driven multiple compression: The software sector remains sentiment-sensitive. Broader risk-off in tech could push the stock lower regardless of improving fundamentals.
- Cash-flow variability: Operating cash flows are positive but variable quarter-to-quarter (investing cash outflows remain significant). A surprise cash drain would force tougher capital decisions or dilutive financing.
Counterargument: One could argue the market is correctly pricing increased competition, slower-than-expected enterprise upgrades, and an uncertain path to durable profitability — and that multiple compression should persist until GitLab demonstrates several consecutive profitable quarters and sustained ARR expansion. That’s a legitimate view; this trade sizes for that uncertainty with a firm stop and staged entries.
Conclusion and what would change my mind
Stance: tactically long (buy the weakness) with defined risk. The company is showing improving GAAP losses, strong gross margins, positive operating cash flow and sequential revenue growth — the kind of cross-section you want to buy on headline-driven declines. A roughly 50% peak-to-trough stock move has reopened a classic risk/reward: either GitLab re-rates as consensus improves, or the stop limits downside if sentiment remains punitive.
Things that would change my view to bearish: a quarter of sequential revenue contraction, a reversal to materially negative operating cash flow, or a guidance reset that materially lowers the revenue growth trajectory. Conversely, sustained operating profitability, materially improved guidance, or clear evidence of expanded enterprise wallet share would push me to add and turn this from a tactical swing into a position trade.
Disclosure
This is not investment advice. The trade expresses a view based on reported financials and recent price action — always size positions to your risk tolerance and use the stop structure described above.