Why You May Want to Hold Off on Buying Splunk Stock — But Not Forever

Democratic presidential candidate Andrew Yang is fond of saying that technology is the oil of the new century. And part of that involves big data. Both a source of controversy and potential, tech firms have increasingly sought to economically harness our data. This progression drives the narrative for Splunk (NASDAQ:SPLK) and by deduction, Splunk stock.

While the company may not be a household name right now, it’s certainly well on its way. Specializing in its “data-to-everything” platform, Splunk aims to radically transform how business operates in the digital age. As their especially helpful YouTube videos explain, Splunk essentially frees human operators from spending excessive time managing big data.

Because of this main purpose, the company can potentially save its clients significant overhead costs, bolstering the bull case for SPLK stock.

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Best of all, it’s not just a great story: SPLK is actively helping world-renowned businesses improve their bottom line. For instance, airplane manufacturer Airbus (OTCMKTS:EADSY) counts itself among Splunk’s high-visibility clients. Better yet, Airbus credits the upstart tech firm for improving operational efficiencies throughout their entire organization. You couldn’t ask for a better advocacy for Splunk stock.

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At the same time, shares haven’t exactly inspired investors following an early head-start to 2019. Since the end of February, SPLK stock has gyrated wildly in a slightly negatively tilting trend channel.

Currently, Splunk stock finds itself just underneath the 50- and 200-day moving averages. Coincidentally, the 50 DMA is about to dip below the 200 DMA, a signal indicating technical weakness.

Is this a case where the markets are dismissing the positive fundamentals, or is something else going on?

Excessive Ambition May Trap Splunk Stock

Personally, I’m excited about what this company can do and how it can progress the broader artificial intelligence narrative. As their video presentations explain, we live in a world of data. Moreover, as humans, we can only do so much with it. But with Splunk’s advanced technologies, we can let computers perform most of the legwork.

In that context, the longer-term picture for SPLK stock is very appealing. Who wouldn’t want an AI platform to extract recurring patterns found within massive data sets and return them to you in seconds?

In prior stories for InvestorPlace, I’ve performed probability forecasts based on “if this, then that” matrices. But the problem for me is time: I’ve got to collect all that data and create formulations to filter out patterns that I’m looking for. It’s time intensive, and I also may miss patterns that I just wasn’t seeking.

Thus, if all businesses today operated on purely quantifiable metrics and functions, Splunk stock is an easy buy.

But the problem is that not all business function that way. In areas that feature a mix of quantifiable data and qualitative information, SPLK stock may run into some challenges. For example, in marketing, you need to understand the human element and socio-economic dynamics that underline consumptive behaviors.

Thus, while the company touts its data-to-everything platform, it should honestly be called data to some things. I say this because artificial intelligence isn’t really that intelligent. In order for Splunk to truly achieve its data-to-everything goal, it would require artificial general intelligence: the ability for machines to replicate human reasoning.

We are far away from achieving that, which limits SPLK’s current practical effectiveness. And that might explain some of the present choppiness in Splunk stock.

Wait for a Possible Discount

As I mentioned earlier, I’m excited to see where Splunk can take their innovative platform. But in the meantime, we must separate the narrative from the investment profile.

Over the last two years, SPLK stock has roughly doubled in value. Fundamentally, however, Splunk has started to slow. For instance, year-over-year revenue growth in the quarter ending July 31, 2019 was 33%. For the year-ago quarter, revenue growth hit nearly 39%.

Naturally, some investors are worried that as SPLK ramps up their investments, the fiscal picture won’t look as attractive. Given some of the choppiness that Splunk stock has exhibited, I think a cautionary approach is warranted.

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