What Happened?
Shares of database as a service company Couchbase (NASDAQ: BASE) fell 6.9% in the afternoon session after markets continued to struggle following the broad selloff triggered by weak economic data in the previous week. On Friday, February 21, 2025, the S&P 500 dropped 1.7%, and the Nasdaq fell 2.2% after PMI numbers showed the U.S. services sector contracted, and the University of Michigan's consumer sentiment index came in below expectations.
Adding to Wall Street's anxiety, rumors swirled that Microsoft is trimming some data center projects, raising concerns that AI-related investments may get a little too bloated.
TD Cowen analyst Michael Elias flagged three key findings from his research. He noted that Microsoft "1) cancelled leases in the U.S. totaling 'a couple of hundred MWs' with at least two private data center operators, 2) has pulled back on the conversion of SOQ's to leases, and 3) has re-allocated a considerable portion of its international spend to the U.S."
Jefferies analysts see this as more of a regional spending adjustment, adding that Microsoft executives "strongly refute" any major shift in their data center strategy.
Investors' attention now turns to Nvidia's upcoming earnings report, a crucial barometer of AI infrastructure demand. The chip giant's Q4 2024 results and forward guidance will be closely scrutinized for signals on whether AI spending remains strong or is beginning to taper off. With so many moving pieces, investors are bracing for a volatile week ahead, while hoping for clarity.
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What The Market Is Telling Us
Couchbase’s shares are quite volatile and have had 16 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 3 months ago when the stock dropped 23% on the news that the company reported weak third-quarter results and provided revenue guidance for the next quarter, which missed significantly - this matters much more as markets are forward-looking. The company provided conservative guidance due to macroeconomic challenges, limiting insights into upsell, migration timelines, and consumption trends. On the other hand, revenue and earnings came in ahead of expectations during the quarter. Overall, this was a challenging quarter.
Couchbase is up 6.6% since the beginning of the year, but at $16.58 per share, it is still trading 43.3% below its 52-week high of $29.26 from March 2024. Investors who bought $1,000 worth of Couchbase’s shares at the IPO in July 2021 would now be looking at an investment worth $545.30.
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