For a few hours on August 7, Doximity, Inc. (NYSE:DOCS) appeared to be the story of the earnings season. The medical-networking platform’s stock more than doubled overnight following its fiscal first-quarter report, with CEO Jeffrey Tangney mentioning a metric that piqued traders’ interest: the company’s new AI Search product, he claimed on the results call, generates more than ten times what it costs to run.
That’s about as good as unit economics get. However, by the time the rush subsided, the stock had given back the majority of its gains. Shares began around $38.86 on the move, surged to an intraday high around $40, and closed the session up 32.6% at $27.40, 31.5% below the top. Even with the pullback, the stock is still down almost 40% year-to-date.
Squeezed Margins and Decelerating Growth
Doximity’s actual quarterly results were solid but far from exceptional. Revenue increased 7% year-over-year to $156.6 million, edging over forecasts, with EPS of $0.29, a penny higher than expected. However, profitability moved the wrong way. Net income plummeted 54% to $24.3 million, adjusted EBITDA declined around 6%, and free cash flow fell 34%, a decline the company blamed on collection timing rather than a structural issue.
Management did improve full-year fiscal 2027 revenue expectations, but only slightly, from $664-$676 million to $671-$681 million, a shift of approximately $6 million at the midpoint. That’s only a 5% growth, a significant decrease from the 13% rise Doximity, Inc. (NYSE:DOCS) achieved the previous fiscal year. The second-quarter guidance implies only 1% year-over-year increase, which is roughly in line with what analysts predicted, thus providing no major upside surprise for the current quarter.
Disconnect Between AI Hype and Revenue Timing
That is the essence of Doximity’s “good numbers, bad reaction” dilemma in reverse: the market originally reacted to a single bullish announcement regarding AI Search margins, rather than the underlying quarter, which showed slowing growth and declining profitability. Analysts have been blunt about the disconnect. According to Jessica Tassan of Piper Sandler, the revised outlook looks to be primarily a pass-through of the Q1 beat rather than a true indication of the AI Search opportunity CEO Tangney highlighted on the call, given that the company earned no AI Search revenue during the quarter.
That said, not everything is bearish. Doximity’s enterprise business showed actual strength, with 112% net revenue retention among its top 20 clients and 127 enterprise customers now producing more than $500,000 in annual recurring revenue, all while maintaining a strong 48% adjusted EBITDA margin. Some analysts still believe the stock is undervalued in comparison to its own history; it is still around 32% below levels hit earlier this year, and the AI Search product’s early economics, if sustained, represent a long-term monetization lever.
Smart Money Sentiment
Prior to the report, institutional ownership data showed hedge funds taking a cautious approach, as well as large short positioning throughout the float. Hedge fund holdings fell from 51 in the fourth quarter to 39 in the first quarter, indicating that smart-money managers were reducing exposure prior to the announcement. At the same time, strong short interest of 19.76% of the float suggests bearish positioning.
The Verdict
The post-earnings price change in Doximity, Inc. (NYSE:DOCS) shows a market that is excited about AI Search’s early economics but that values revenue recognition more. While strong unit economics on AI Search represents a high theoretical leverage model, the near-term profile is limited by 5% top-line growth and declining cash flows. For the time being, investors will need to watch whether AI Search contributions begin to materially accelerate overall revenue growth.
While we acknowledge the risk and potential of DOCS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than DOCS and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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