Why Splunk Stock Is Highly Volatile Today
What happened
Shares of Splunk (NASDAQ: SPLK) are seeing big swings in Thursday's trading. The enterprise search software company's stock was down roughly 1% as of 2:30 p.m. ET, according to data from S&P Global Market Intelligence. However, the stock had been up by as much as 11.3% in the daily trading session before the market reassessed the company's first-quarter earnings results and guidance.
Splunk published its Q1 earnings after the market closed yesterday, posting sales and earnings results for the period that came in ahead of Wall Street targets. The company reported non-GAAP (adjusted) earnings per share of $0.18 on revenue of $752 million. Meanwhile, the average analyst estimate had called for a loss of $0.12 per share on sales of $727.2 million.
So what
Splunk's revenue climbed 11% year over year in the first quarter, and its cloud revenue grew 30% to hit $419 million. The company's total annualized recurring revenue also grew 16% year over year to reach $3.725 billion.
With the company's sales climbing and its adjusted operating expenses declining 1% year over year in the period, the search software company was able to post a big earnings beat. Following the release, the stock also got a slew of favorable coverage and price-target hikes. But despite the substantial sales and earnings beat and rave reviews from analysts, the company hasn't been able to hold on to its post-earnings pop -- and it may have something to do with Nvidia.
After posting strong Q1 results and issuing guidance that blew away the market's expectations, Nvidia is Thursday's stock market darling. In addition to its graphics processing unit business, the company is now moving into offering artificial intelligence (AI) services for enterprises. With the computing giant's new generative-AI-as-a-service offerings on the horizon and also teaming up with Microsoft and ServiceNow for additional enterprise offerings, there's a risk that Splunk's value proposition will be damaged.
It's also possible that some large institutional shareholders opted to reduce their holdings in the stock following the post-earnings rally.
Now what
Artificial intelligence is set to have a powerful impact on most industries, and right now it looks like the AI revolution will be most beneficial for large service providers. While it's not clear yet how Splunk's business will be impacted by the trend, the company will have to show that it can innovate and integrate AI in ways that ensure its search and analytics offerings continue to offer attractive value for customers.
10 stocks we like better than Splunk
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Splunk wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of May 22, 2023
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft, Nvidia, ServiceNow, and Splunk. The Motley Fool has a disclosure policy.
