Confluent: How Data Streaming May Transform AI

Key Points

• Confluent is a data streaming services provider highlighting the impact that accessible, organized, and trusted data can have on real-time AI deployment.
• Through its partnership with Databricks, Confluent aims to revolutionize the way that AI can operate based on real-time data.
• The company had a strong fourth quarter, optimistic guidance, and widespread analyst optimism.

In the tech world—and increasingly in other sectors as well—data is everything. Confluent Inc. NASDAQ: CFLT is a leader in the data streaming space, with a range of platforms and services making it possible for customers to exert greater control over the data used in their applications and systems. Its tools help companies to accelerate data streaming without compromising their regulatory compliance and risk management, and to consolidate data from multiple sources in a single platform.

The benefits of greater control and efficiency in data streaming are far-reaching, particularly as companies across industries venture further into AI applications, notorious for their vast hunger for data. While generative AI has largely been used for analytical applications—processing vast amounts of data to identify patterns for tasks like creating photorealistic images or powering chatbots—Confluent may be uniquely positioned to expand its role in operational AI, making data more accessible and potentially transforming the industry.

Databricks Partnership Key to Real-Time AI

In February 2025, Confluent and fellow cloud-based data intelligence platform Databricks announced an expanded partnership seeking to reduce AI deployment times with the goal of making real-time AI data applications possible. One goal of the partnership is to break down traditional silos of proprietary data into operational and analytical areas, allowing for AI platforms to make use of up-to-date data when executing time-sensitive decisions and operations. The partnership is expected to benefit both Confluent's Tableflow system and Databricks' Unity Catalog, allowing for trusted integration and data flow between the two.

Investors seem to believe the partnership has significant potential to transform AI. Confluent shares spiked by 25% immediately following the announcement. Though they have settled in the weeks since that time, as of February 21, 2025, they remain up more than 16% in the last month and nearly 45% in the last six months.

Confluent's Growth Strategy Is Paying Off

Besides its efforts to revolutionize AI, Confluent has engaged in an aggressive expansion effort that has yielded not only a larger market and more customers, but increased spend from prior customers as well. In its latest report, issued in February 2025, Confluent noted that the number of customers with ARR of $100,000 or more increased by 12% year-over-year, while quarterly subscription revenue surged by 24% to $251 million over the same time period. The company's biggest customers—those with ARR of over $1 million—are also growing, as the number of high-ARR clients climbed by 23% year-over-year. Further, Confluent customers seem to stand by its products, as the firm's dollar-based net retention rate from the latest quarter was 117%.

Confluent Cloud has been critical to growth, as this segment of Confluent's business experienced a 38% year-over-year increase in revenue. This has helped the company improve its free cash flow margin by 17% from fiscal 2023 to fiscal 2024. Notably, the company says that it beat all of its guidance for the year, even as it set ambitious fiscal 2025 guidance including subscription revenue ranging from $1.117 to $1.121 billion.

Analyst Views Generally Remain Bullish

As of February 21, 2025, 20 out of 29 analysts rating Confluent have assigned it a Buy, while eight suggest a more cautious Hold. What's more, despite the company's significant rally in recent months, analysts think there's more room for upside. Confluent has a consensus price target of $35, more than 10% above current levels. Analysts at Morgan Stanley, Truist Financial, and UBS Group all boosted their price targets following the announcement of the updated Databricks partnership.

While Confluent's free cash flow is improving, and it posted non-GAAP net income in the latest quarter, it still noted GAAP net losses for the quarter, which may give some investors pause. Additionally, there is a faction of investors less optimistic about the company's abilities to upend AI—in the second half of January, short interest in CFLT shares increased by more than 12%, and the month ended with about 5.9% of all CFLT shares sold short. Investors will thus have to weigh out opposing viewpoints when deciding whether to take an optimistic view of Confluent's potential, though it's worth keeping in mind the strength of its recent performance when doing so.