Rubrik stock drops as gross margin slips: Is the selloff a buying opportunity?

Rubrik stock price has had a rollercoaster this week. It jumped to a record high of $107.7 on Thursday and then pared back some of those gains after publishing its financial results. It dropped by over 7% and retested the crucial support level of $100.

Rubrik published strong earnings

Rubrik is a top company in the cybersecurity industry, where it helps companies protect, monitor, and recover their data. Its backup and recovery solutions helps companies to automatically back up and recover data from on-premises systems, cloud platforms, and databases. The company also helps in ransomware protection, data security, and cloud data protection.

Rubrik is used by some of the biggest companies in the United States, including popular names like PepsiCo, Iron Mountain, Adobe, and The Home Depot.

The company, together with others in the cybersecurity industry, is at an inflection point. For a long time, attacks have been coming from humans, and this trend will continue over time. 

Now, future attacks will mostly come from AI operators as evidenced by the recent hackings by models made by Anthropic and OpenAI. This is important because some of the most advanced models are coming from Chinese companies. As a result, its results showed that its total addressable market (TAM) will be $125 billion by 2029. In a statement, the CEO said:

“Mythos and frontier AI models have fundamentally changed the cybersecurity landscape. This new reality demands not only machine speed cyber recovery but also autonomous runtime AI agent security. Rubrik’s Agentic Cyber Resilience delivers on both to enable trusted AI transformation.”

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Rubrik’s results showed that its revenue jumped by 38% in the second quarter to $427 million. This revenue growth was better than what analysts were expecting. Also, its free cash flow (FCF) jumped to $76.8 million. This growth happened as the number of customers paying $100,000 a year crossed the 3,000 milestone.

The company also provided an encouraging guidance. It now expects that its third quarter revenue will be between $429 million and $431 million. It also expects that its annual revenue will be between $1.685 billion and $1.693 billion. Yahoo Finance data shows that analysts were expecting its annual revenue would jump to $1.64 billion, followed by $2 billion next year.

To some extent, Rubrik is a highly overvalued company since it has a market capitalization of over $22 billion and is still making losses. It has made a net loss of over $2 billion in the past few years. Indeed, its current price is in the same range as the consensus analysts forecast.

Rubrik stock technical analysis

RBRK stock chart | Source: TradingView

The daily chart shows that the RBRK stock has been in a strong bull run in the past few months, moving from a low of $42.4 in May to a record high of $107 on Thursday. It then dropped to $100 after its earnings. 

On the positive side, the stock has remained above all moving averages and has formed an inverted head-and-shoulders pattern. It has been forming a series of higher highs and higher lows. 

Therefore, the stock will likely resume the uptrend and potentially reach a high of $120. The bullish outlook will remain as long as it is above the 50-day moving average.