2 Reasons to Scoop Up Rubrik Stock and Hold on for Life
There are more than two reasons to scoop up Rubrik (NYSE: RBRK) stock and hold onto it for life. Still, the two key points to focus on today are that its Q2 release affirms its robust outlook, and neither the results nor guidance reflect the strength indicated by Oracle’s corresponding report.
What does Oracle have to do with Rubrik? Rubrik’s data-centric, AI-friendly, cybersecurity services are embedded in Oracle’s Cloud Infrastructure (OCI), and OCI is growing like mad.
Oracle’s (NYSE: ORCL) Q2 report revealed that business from hyperscalers, including Amazon, Microsoft, and Google, increased by 1500% year over year as they lean into high-performance computing. More importantly, Oracle’s data center segment, the heart and soul of OCI, is expected to grow at a triple-digit pace each quarter for the next two years and drive demand for Rubrik’s services along the way.
According to Chairman and CTO Larry Ellison, Oracle will double its data center footprint within the next few years. Rubrik also has significant ties to the major hyperscalers that drive its business.
Rubrik Falls After Posting Beat and Raise Quarter
Rubrik’s stock price fell by 15% following the Q2 release because the strengths were expected, and nothing new was presented to pique investor appetite. However, the revenue and earnings outpaced the consensus reported by MarketBeat.
The trend since the previous report has been robust, with the recent revisions aligning with the Q2 results.
However, the takeaways should include the company’s accelerating growth and margin strength, which were significant. Revenue grew by more than 51%, driven by a 55% increase in subscription services, which in turn were driven by new, large clients.
The number of clients contributing more than $100K to recurring revenue increased by 27% and is expected to grow.
The margin news is also favorable to investors. The company widened its gross margin by several hundred basis points, narrowing its operating losses despite increased marketing and R&D. The company posted an adjusted loss, as expected, but it was far smaller than forecasted.
Still, the critical details are cash flow and free cash flow. The company shifted from negative to positive cash flow and free cash flow (FCF), producing a 19% FCF margin and an outlook for continued profitability.
Likewise, the guidance is good, but it did nothing to whet investor appetite. The increased outlook forecasts approximately 38% annualized growth, which the market had been pricing in.
Yes, Rubrik Analysts Lifted Price Targets After the Guidance Update
The analysts’ response contradicts the market, including numerous reaffirmed targets and price target increases. The bulk of targets are above MarketBeat’s reported consensus, which forecasts a 25% upside as of mid-September.
A move to the consensus is sufficient to set a new high and break this market out of its trading range. In that scenario, the stock price could advance $20 to $50 and continue moving higher over the long term.
Short-selling could be a headwind for the market until the Q3 results are released. The short interest isn’t astronomically high, but 8% is sufficient to cap gains, and the trend in short interest is upward. The risk for short-sellers is the institutional data.
The institutions own more than 50% of the stock, their activity is ramping higher in 2025, and the balance is bullish. If they continue buying, the uptrend in the share price will remain intact and critical resistance levels will be retested.
A move above those levels, near current highs in the $100 range, could trigger short-covering and lead to an explosive upside movement.
