AI-Powered Dropbox Sees Stock Soar: A Comeback in the Making?

Key Points

• Dropbox's second-quarter earnings report led to eight consecutive weeks of price gains.
• Analysts expect the company's earnings per share to increase by 18% this year and 12% next year.
• The company's June 21 product announcement highlighted its incorporation of AI into its preview feature.
• Dropbox shares are extended beyond recent buy point, but a pullback could offer a new buy opportunity.

A few years ago, Dropbox Inc. NASDAQ: DBX was the rage as the hot productivity tool to help business users organize files. 

Is the stock recapturing some of its former glory as it joins the current bout of AI mania? 

Dropbox staged a big rally beginning in November 2020 and lasting through August 2021 amid the work-from-home transition as companies signed up legions of remote workers for the company’s document sharing and storage service. 

But late in 2021, as the pandemic-era tech rally began to weaken, Dropbox rolled over into a downtrend that it seemingly couldn’t escape. Recently, though, that’s begun to change dramatically. 

While it’s a fairly popular and well-known business app, Dropbox has always been a little clunky, sometimes forcing users to download files instead of being able to make changes in real-time in a shared document. It’s true that collaboration is possible on Dropbox, but it’s not always as intuitive as with other systems. 

That’s given competing systems like Alphabet Inc.’s NASDAQ: GOOGL Google Drive an edge when it comes to ease of use.  

AI Announcement Sending Shares Higher

However, investors are more concerned with technological advances than customer happiness (unless customer complaints result in decreased sales and earnings). That’s particularly true when it comes to AI.

Some recent events, including an earnings beat and a June 21 announcement about AI developments, have sent Dropbox shares rallying 13.18% higher in May and 14.38% higher in June. 

Here’s a rundown of the Dropbox chart action as it’s unfolded in recent weeks. 

The stock cleared a cup-with-handle base in early February. That breakout quickly broke down, and the stock pulled into a new correction, falling even harder after the company missed bottom-line views in its first-quarter earnings report, as you can see using MarketBeat’s Dropbox earnings data. 

The most recent area of price consolidation was constructive, as it resulted in lower lows than the previous base. That type of price action, while seemingly discouraging, frequently sets up a stock for gains, as investors who believe in the stock can scoop up some shares at a lower valuation. 

In a bit of a departure from AI announcements resulting in stock price increases, Dropbox’s late April announcement that it would lay off 16% of its global workforce and hire employees with AI specializations actually sent shares significantly lower. 

Q2 Earnings Report Was Catalyst For Gains

However, the company’s second-quarter earnings report was a catalyst for eight weeks in a row of gains. 

The company beat views, causing analysts to increase their forecasts. After the report, Goldman Sachs upgraded its rating to “neutral” from “sell” and boosted its price target. 

Despite being a well-known name, at least among business users, Dropbox isn’t a very big company. Its market capitalization is just a little over $9 billion, and it’s attracted scant analyst coverage. MarketBeat’s Dropbox analyst ratings reveal only seven analysts following the stock.

Collectively, those following the stock expect the company to earn $1.86 per share this year, a year-over-year increase of 18%. That estimate was recently revised higher. Next year, earnings are seen growing by another 12%, to $2.08 per share. 

Rallying In Higher Trading Volume 

Dropbox shares have been on a rocket ride lately, and while that obviously can’t be sustained forever, it’s an indication that institutions are buying. May’s upside trading volume was 39% higher than average, and June’s is 134% higher. 

In its June 21 product announcement, “Introducing Dropbox Dash, AI-powered universal search, and Dropbox AI,” the company reminded readers that it’s been using machine-learning tools for years. It’s now incorporating AI into its preview feature, which allows users to view, comment on, and share files without downloading them. The AI integrations will allow users to get information about documents without searching through large files, which should be a welcome time-saving device. 

Formed AI-Focused Venture Capital Unit

The company also announced the formation of Dropbox Ventures, a new $50M venture initiative “to propel the next generation of startups who are transforming how we work through innovations in AI.”

Dropbox said companies in its venture portfolio will receive financial support and mentorship to build new AI-powered products. It’s common for larger companies to launch venture capital units to nurture start-ups with complementary technologies. These companies can either be acquired or can sign on as strategic partners. 

Dropbox shares are extended from their most recent buy point above $24.72, but a pullback to a moving average could present an opportunity to add shares or initiate a purchase.