Investing.com -- Guggenheim Securities downgraded GitLab stock to Neutral from Buy on Tuesday and removed its $50 price target, citing "more pronounced AI risk and lack of near-term catalysts."

Upon initiating coverage on the stock in September 2025, Guggenheim analysts had expected stronger net revenue retention (NRR) and existing customer seat growth. They now model 19% revenue growth for fiscal year 2027 (FY2027), versus initial company guidance of 16% at the midpoint, with an operating margin of around 14% versus guidance of 12%.

The key concern is NRR, which has decelerated from 133% in FY2024 to 123% in FY2025 and 118% in FY2026. Guggenheim expects it to exit FY2027 at around 113%, below management’s own expectation of approximately 115%.

The analysts attribute the pressure to budget dollars being redirected toward AI coding tools, with management acknowledging that over 30% of annual recurring revenue (ARR) is under stress — roughly 20% from price-sensitive SMB and mid-market customers, and 12% from the public sector.

On a more positive note, Gitlab’s gross revenue retention has held consistently near 96–97%, churn was the lowest in four years exiting FY2026, and new logo contribution has added 800 to 1,000 basis points to total revenue growth.

Record growth in customers with more than $1 million in ARR, up 26% year-over-year to 155 accounts, was also flagged as a positive.

The bigger structural worry, however, is GitLab’s seat-based model. "Under what is still almost entirely a seat-based model, GitLab doesn’t monetize incremental usage, only tier upgrades," the analysts wrote.

As AI coding tools improve and developers use them to write larger shares of code, willingness to expand GitLab spending is likely to erode even without a reduction in developer headcount, they noted.

On the agentic side, Guggenheim expressed skepticism about the Duo Agent Platform (DAP), GitLab’s new credit-based model featuring prebuilt agents for CI/CD, security, and planning tasks.

"Based on our initial customer conversations, interest has been limited," the analysts said, adding that 70% of revenue comes from self-managed customers who must upgrade to release 18.8 or later to access the product. Management has guided for minimal DAP revenue contribution in FY2027.

GitLab shares are down 43% year-to-date, compared with a 25% decline in the IGV software ETF.