MongoDB, Inc. (NASDAQ:MDB), has been a front-runner in the database solutions market, and has been expected to benefit significantly from the AI revolution. However, I believe the company has fallen short of these expectations. Their potential for success has been based around their flexible, scalable database systems that should be integral to handling the vast data processing demands of AI technologies. Despite this, MDB’s growth has not met expectations, raising concerns over the company's future growth.

Despite the optimism surrounding MongoDB within the AI market, as mentioned above, their recent performance and future guidance reflect a different reality. The company recently projected modest 12% year-over-year sales growth, falling short of the anticipated 20% or more that investors might expect in such a booming sector. The underperformance of MongoDB falls under a larger trend observed among software companies at the AI layer, which is showing that some companies are not yet seeing the benefits of the AI demand as quickly as predicted​​.

Looking at their valuation metrics, MongoDB's valuation appears stretched. Their forward Price-to-Earnings (P/E) ratio stands at 109.78, 361.38% above the sector median of 23.79. I think this premium demonstrates the significant overvaluation of this company. With this, MongoDB’s shares appear far too expensive considering their current and predicted future growth. If growth were to re-accelerate, then I think this rating would be justified. Until then, I recommend MongoDB as a Strong Sell.

Background: Where Does MongoDB Fit In The AI Boom?

As I mentioned above, MDB was expected to be a key player in the AI market. The reasoning for this comes down to their open-source platform. Open-source platforms are extremely beneficial, as they are usually priced at a lower cost, sometimes even free as in the case of MongoDB, and allow consumers to modify the code of the program to fit their specific needs. MongoDB also offers a flexible architecture that is well-suited to handle the large and complex data sets that AI technologies generate, making it a popular choice among developers in this space.

Due to the open-source benefits of this program, it is especially popular among developers. In fact, downloads for their different software programs currently stand at 40 million and are continuing to grow. While other database companies have surpassed MongoDB in popularity, such as Postgres, MongoDB is still considered the “de facto” choice for full-stack developers due to its easy use.

At industry events, such as the 44th Annual William Blair Growth Stock Conference, MongoDB's expected role in the AI boom was discussed. The conference emphasized the importance of their database architecture to developers who require databases that store vast amounts of data and allow for rapid, real-time processing essential for machine learning and other AI applications​​. For example, Serge Tanjga, an SVP finance at MongoDB mentioned:

[MongoDB is seeing a] tremendous amount of interest in AI in our customers and it sort of spans the gamut from the developers all the way up to C-suite. - 44th Annual William Blair Growth Stock Conference.

Developers value MongoDB’s database. This was expanded on during the 2025 Q1 earnings call on May 30th. During the call, President and CEO Dev Ittycheria, listed some of the current applications of MDB’s technology, stating:

Enterprises and startups use MongoDB to deliver the next wave of AI-powered applications to their customers, including ACI Worldwide, DevRev, and Novo Nordisk.- Q1 2025 earnings call.

In addition to this, the CEO also brought up Toyota’s use of MongoDB technology, stating:

Toyota Connected is now using Atlas for over 150 microservices. Their solution benefits from 99.99% uptime with Atlas as a platform for all data, including mission critical vehicle telematics and location data needed for emergency response services. - Q1 2025 earnings call.

While I believe MongoDB core database technology is valued by Fortune 500 companies and developers in this AI revolution, this doesn’t on its own solve their growth problem. MongoDB serves as a critical infrastructure layer in the AI revolution, providing the necessary backend support that AI technologies require to function efficiently, but this has just not been seen in their growth.

The Problem: Growth Has Slowed

MongoDB’s importance in the AI revolution has not translated to their finances. The database company has experienced a significant deceleration in their growth trajectory, which is troubling considering this company was previously positioned to thrive from the AI surge. Despite the broader market's optimism around technology stocks benefiting from AI advancements, MongoDB’s actual performance has painted a different picture.

Seen below is a graph of MongoDB’s revenue trajectory. We can clearly see the plateau, which has shown no signs of re-accelerating.

While revenue is still increasing, the rate at which it is growing is decreasing. Looking forward, it doesn’t seem to get any better. The company revised their year-over-year revenue growth projections downward to 12%, a substantial decline from the previously forecasted 20%​​. This slowdown is not an isolated occurrence, but part of a worrying trend across the software industry, particularly among platforms anticipated to benefit from the integration of AI technologies.

There are multiple reasons for this slowdown. For example, one possible explanation is the time it takes for companies to adopt and fully integrate new technologies into their operations, which can be lengthier than initially anticipated. Adding to this, MongoDB faces stiff competition from other database providers who are also enhancing their systems to harness the power of AI, further pressurizing their market share and growth prospects​​.

MongoDB also has their own thoughts about their slowing growth. During the Q1 2025 earnings call, Dev Ittycheria was asked about growth for next year. He responded:

We have low [market] share, but we have to acquire business workload by workload, which is harder than, say, getting a broad-based decision, the [customer] to standardize the technology across the enterprise. The base is growing, but it is slowing over time.- Q1 2025 earnings call.

This slowdown in growth and the adjustment of financial expectations have raised concerns among investors about MongoDB's capability to leverage AI for rapid growth. The market has historically justified the high valuation multiple for MongoDB with the expectation that strong growth would continue and allow them to be more than a “low [market] share” company in the space. My concern is that this is not holding up.

Valuation

Digging into their valuation, I think it’s clear the market valuation is misaligned with the company's actual financial performance and growth trajectory. The company’s forward Non-GAAP Price-to-Earnings (P/E) ratio stands at 109.78, which is 361.38% above the sector median of 23.79. Normally, this premium suggests an expectation of significant growth. In our case (and going forward) MongoDB is not on a path to demonstrate​​ this exceptional growth.

When looking at the database company’s forward revenue growth projection of 20.86% (which still may be higher than the company guidance of 12% growth), the percentage premium compared to sector median is 215.63%, significantly less than the 361.38% premium the P/E has over the sector median. In essence, the company’s growth premium does not seem to justify the high P/E.

With this, the company’s 5-year average for growth is 35.91% is greater than their current forward projection, which shows growth is clearly slowing. I believe this is the opposite of what you want to support such high valuation multiples.

Keep in mind as well, if we actually look at the company’s GAAP accounting, the company currently has a negative FWD and TTM P/E GAAP ratio. This indicates that the company is actually losing money after accounting for non-cash costs like stock compensation.

I believe if shares were to see the P/E premium come down to the growth premium (only a 215.63% premium), the new P/E ratio would be equal to roughly 51.3. This number was calculated by multiplying the P/E ratio of 23.79 by the growth sector median of 215.63% ((using 2.1563 for calculations)). This would then represent a downside of roughly 40.3%. I calculated this downside by dividing the growth premium to sector median by the P/E ratio premium to its respective sector median and then subtracting one (((215.63/361.38)-1)).

Of course, these calculations assume that the growth premium will hold true and remain around the same value. However, given growth will likely slow further due to management guidance, I feel relatively confident their forward P/E may deserve to drop below 51.3 as management readjusted their future growth projections to around 12%.

Bull Thesis

While MongoDB has faced numerous challenges stemming from slowed growth and a stretched valuation, I believe there remains a few areas that could potentially help turn around their growth projections, potentially supporting their current valuation.

For the elephant in the room, if growth were to re-accelerate, then my position on the database firm would shift. Growth re-accelerating would likely be driven by an increase in use of MongoDB's new AI database technology, which remains highly regarded for its scalability, flexibility, and performance in handling large and complex datasets.

Here it’s also important to point out that MongoDB pushing strong development and is continuing to develop new AI features that enhance the capabilities of their database solutions.

I believe these innovations are aimed at making MongoDB's platform even more integral to AI applications by improving data handling and analysis capabilities, thus aiming to drive greater adoption and integration into new and existing markets​​. The introduction of new AI features could be the push for growth to increase.

Unfortunately, while the company’s investments do raise the probability for a growth re-acceleration, I don’t think they’re enough to accelerate growth enough to even justify the current valuation of the company (meaning even a hold opinion on the stock appears hard to justify).

Takeaway

While I believe that MongoDB makes a solid database software, I think their valuation is far too high considering the projected growth metrics. Their product has proven to be clearly helpful for the expansive needs of AI and big data analytics, but the company’s financial performance and growth rates have not lived up to market expectations. With their stretched valuation, highlighted by an excessively high P/E ratio and decreasing growth metrics, this suggests that the stock is currently overpriced.

If we were to see the valuation for MongoDB come way down, or see growth increase substantially, then I would be willing to upgrade my rating on this stock. In this current environment, I do not think this will happen soon. While I believe MongoDB has created a good product, the valuation is just too concerning for me. Therefore, I believe MongoDB is a strong sell.