Doximity Inc. (NYSE: DOCS) shares dropped 5.6% on Tuesday after Freedom Capital shifted its recommendation on the telehealth-focused platform from Buy to Hold, even as the firm lifted its price target to $27 from $24.
The broker's move came in the wake of Doximity's fiscal first quarter, which outperformed Wall Street expectations. Company management updated guidance with a higher full-year revenue outlook but reduced its EBITDA projection - a change Freedom Capital attributes to increased spending to support wider use of AI across products.
Freedom Capital analyst Gene Mannheimer emphasized that the quarter reinforced the revenue case for Doximity's AI initiatives, particularly AI Search. He noted the quarter looked stronger on the top line versus the prior quarter, with AI Search contracts showing promising early traction and some indications that pharmaceutical customer budgets may be stabilizing.
At the same time, Mannheimer highlighted that the business is incurring another step-up in AI compute and product investment. As a result, the firm's fiscal 2027 EBITDA guidance midpoint was lowered to $319 million from $329 million, while the revenue outlook received a modest 1% lift.
Reflecting on those dynamics, Mannheimer said the quarter validates revenue-side elements of the AI thesis but comes at the cost of margin deterioration. He concluded that given the current balance between upside from AI-driven revenue and downside risk to profitability, the risk-reward profile appears balanced - prompting the Hold rating.
Freedom Capital also suggested that market participants are weighing the early momentum in AI Search against signs of softness in Doximity's core business. The firm attributes that softening in part to competitive pressure from Epic and OpenEvidence. The analyst reiterated that pharma spending remains tight overall, even as budgets may be stabilizing, and reiterated that AI Search contracts have shown good early traction in his assessment.
Key details
- Shares fell 5.6% following a downgrade to Hold despite a higher price target of $27 from $24.
- Fiscal Q1 results beat estimates; management raised full-year revenue guidance but trimmed EBITDA outlook to accommodate higher AI investment.
- Freedom Capital reduced fiscal 2027 EBITDA midpoint guidance to $319 million from $329 million while increasing revenue outlook by 1%.
What this means
The update frames a trade-off: early adoption and monetization of AI Search are supporting revenue growth, but stepped-up AI compute and product spending are pressuring margins and near-term profitability.