Investing.com -- William Blair upgraded GitLab to Market Perform from Underperform, saying the software company's strong second-quarter results and improving operating trajectory had created a more balanced risk-reward profile.

The brokerage said GitLab delivered broad-based improvements in growth, sales execution and customer expansion, including record gross bookings, accelerating net annual recurring revenue growth and a sequential improvement in net dollar retention for the first time since 2024.

GitLab's second-quarter revenue rose 21.3% to $286.3 million, beating the Street estimate of $273.1 million by $13.1 million. Adjusted operating income came in at $42.6 million, versus an expected $31.3 million, while adjusted earnings per share was 24 cents, beating the 18-cent consensus estimate.

William Blair said the quarter showed strength across customer types, geographies and products. Deals worth at least $500,000 increased more than 150% from a year earlier, while Ultimate-tier ARR grew about 35% and accounted for 59% of total ARR. SaaS revenue increased 36% and represented 34% of total revenue.

The brokerage also pointed to improving sales execution. First-order counts more than doubled to about 1,700, first-order net ARR rose 39%, account executive capacity increased about 30% and productivity per representative improved roughly 10%. SMB and midmarket activity also stabilized, while competitive win rates improved.

The brokerage's new Market Perform rating reflects its view that GitLab's improving fundamentals and expanding AI and consumption opportunities are offset by the need to prove the durability and economics of its newer growth initiatives.

William Blair said GitLab's artificial-intelligence strategy was also gaining credibility. Paid consumption for its Duo Agent Platform rose about 50% sequentially, while secure repositories increased 60%, code pushes rose 50% and CI/CD pipelines grew roughly 40%. The brokerage said those trends support the view that higher AI-generated code volumes could increase demand for source-code control, security and governance rather than undermine GitLab's opportunity.

GitLab raised its full-year fiscal 2027 outlook, with revenue now expected at $1.131 billion, up 18.4% from the prior year, while adjusted operating margin is forecast at 13.3% and adjusted EPS at 86 cents. Third-quarter revenue guidance was set at $282 million, with adjusted EPS of 20 cents.

Despite the upgrade, William Blair said it still wanted evidence that the recent bookings strength was sustainable and that Flex would generate incremental growth rather than mainly shift existing customer commitments. It also cited competition and potential pressure on seat-based pricing as key risks.