Splunk's New AI Assistant to Amplify Enterprise IT Capabilities: Analyst Reiterates Buy Rating

BMO Capital analyst Keith Bachman maintained a Buy rating on Splunk Inc SPLK with a price target of $117.00. The analyst attended Splunk's conference event in Las Vegas. 

The most positive takeaway was the improved integration of Splunk's observability solution. He did not change his estimates, rating, or target price.

Splunk's observability solution has received positive feedback, with better integration of acquired pieces. Wins in observability are driven by cloud use cases, high scalability requirements, and within Splunk's existing customer base. Sales representatives claim lower total cost of ownership (TCO) for high scalability use cases.

Large enterprise security customers evaluated competitive products but found Splunk to outperform alternatives like Exabeam, QRadar, Sentinel, and Elastic. Despite pricing frustrations, all companies renewed with Splunk.

New logos contribute around 20% of the net new ARR, showcasing impressive growth. Splunk negotiates price increases of 5% to 20% each year, although the higher end may be aggressive. Splunk charges based on workloads/usage and data storage, prioritizing value over data storage fees.

Truist analyst Joel P. Fishbein Jr. reiterated a Buy rating with a price target of $130.00.

At Splunk's user conference this week, the company made announcements across their core use cases that the analyst believes will help strengthen their foothold in the enterprise IT stack. 

They also took the next step in their AI roadmap with the release of the Splunk AI assistant, which is in preview today. 

Fishbein believes that Splunk remains an underappreciated story in his coverage as new management has brought an attitude of operational execution to the company over the last year, driving significant FCF leverage. 

The analyst writes that despite their strong performance, the company could still provide upside to street expectations. The launch of the Splunk AI Assistant tool signals long-term growth potential. The tool aims to embed AI capabilities across all use cases and lower the learning curve for users.

Security remains a core use case for Splunk, driving business growth. Updates to SIEM, SOAR, and Threat Intelligence solutions and the introduction of Splunk Attack Analyzer highlight the company's commitment to security offerings.

Splunk has multiple growth levers, including partnerships with CSPs, new use cases like AI tools, and opportunities in the federal space with FedRAMP High status.

Splunk has demonstrated operational efficiencies, improving its T12 FCF margin and decreasing total operating expenses. The company's diversity of use cases and upcoming renewal conversations provide expansion opportunities.

Price Action: SPLK shares are trading lower by 1.66% at $107.47 on the last check Wednesday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.