Doximity Stock Slides After Freedom Capital Downgrade on Margin Concerns

Shares of Doximity Inc. (NYSE:DOCS) dropped sharply on Tuesday after Freedom Capital downgraded the medical technology firm's stock to Hold from Buy. The downgrade occurred even as the investment firm raised its price target on Doximity to $27 from $24, reflecting a more balanced risk/reward outlook.

AI Investment Pressures Profit Outlook

The ratings change followed Doximity's fiscal first-quarter results, which surpassed Wall Street estimates. In its updated forecast, Doximity's management increased its full-year revenue guidance but lowered its outlook for adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) to fund higher spending on artificial intelligence.

According to Freedom Capital analyst Gene Mannheimer, the move validates the revenue potential of Doximity's AI initiatives but comes at the "expense of margins." The firm noted that Doximity reduced its fiscal 2027 EBITDA guidance to a midpoint of $319 million from $329 million, even while boosting its revenue outlook by 1%.

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Market Weighs Growth Against Competition

Following the report, Doximity shares fell 5.6% in Tuesday's trading. The market appears to be weighing the positive signs from the company's AI Search product against a perceived softening in its core business, according to Mannheimer's note.

The analyst attributed the pressure on the core business to competition from Epic and OpenEvidence. While pharma spending remains "tight," Freedom Capital noted that budgets may be stabilizing, and Doximity's AI Search contracts are showing "good early traction."