Why Is HashiCorp (HCP) Stock Soaring Today
What Happened:
Shares of cloud infrastructure automation platform HashiCorp jumped 5.8% in the morning session after stocks continued to rally, and both the S&P 500 and NASDAQ Composite made 52-weeks highs. This follows a dovish stance from the Fed after its monetary policy meeting. On December 13, 2023, the Federal Reserve maintained its key interest rate for the third consecutive time, holding it within the targeted range of 5.25%-5.5%. Additionally, committee members signaled a more dovish stance for 2024, anticipating at least three quarter-point rate cuts, roughly aligning with market expectations but more accommodative than Fed officials' previous statements. The market is focusing on this change.
The Fed Chair added that "Inflation has eased from its highs, and this has come without a significant increase in unemployment." This sounds a lot like the "soft landing" many market participants were hoping for, where inflation comes under control without damage to the economy that could hurt overall consumer demand.
In line with the Fed's assessment, on December 12, 2023, the Bureau of Labor reported a slight decline in inflation, attributed to lower gasoline prices and a general easing of price pressures in the U.S. The consumer price index (CPI) for November showed a 3.1% increase from the previous year (in line with market expectations), down from 3.2% in October, indicating ongoing disinflationary pressures.
As a reminder, lower rates are good for stock valuations, especially for tech companies where the market needs to discount back cash flows further out in the future. When the math is done to discount these cash flows back to today, a lower assumed discount rate leads to higher present values. After the initial pop the shares cooled down to $22.71, up 4.5% from previous close.
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What is the market telling us:
HashiCorp's shares are very volatile and over the last year have had 30 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 7 days ago, when the stock dropped 15.2% on the news that the company reported third quarter results. Net revenue retention, an important metric that could give hints on customer satisfaction, customer willingness to increase spending, and even competition, fell and missed expectations. Additionally, RPO (remaining performance obligations, a leading indicator of revenue) came in below Wall Street's estimates. The company attributed these results to challenging market conditions, leading to increased deal scrutiny. Also, changes in customer purchasing behavior resulted in smaller land contracts as well as expansion and extension contracts. Despite the challenges, Hashicorp's revenue outperformed during the quarter, leading to a slight upward revision of the full-year revenue guidance. While this provides reassurance, it's essential to note that the overall quarter was weaker, underscoring the difficulties in sales execution amid a more challenging business environment.
In response to these results, TD Cowen analyst Derrick Wood downgraded the stock's rating from Outperform (Buy) to Market Perform (Hold) and lowered the price target from $28 to $23. Wood expressed concerns about the limited growth visibility in the coming quarters, indicating a cautious stance on the stock.
HashiCorp is down 12.3% since the beginning of the year, and at $22.71 per share it is trading 39.1% below its 52-week high of $37.28 from February 2023. Investors who bought $1,000 worth of HashiCorp's shares at the IPO in December 2021 would now be looking at an investment worth $266.76.
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