Story Stocks^®

Grid Dynamics (GDYN +10%) is making a strong move following news last night it will join the S&P SmallCap 600 Index on January 2. We think joining the index is a feather in its cap and a sign that the company continues to grow nicely. The company provides technology consulting, assisting companies undergoing business transformations. Given the mounting popularity of AI, GDYN's services have enjoyed accelerating demand.

• Revenue growth has picked up in recent quarters. It flipped from three straight quarters of negative growth yr/yr to +7.4% in Q2 and +12.9% in Q3 to a record $87.4 mln, which was above prior guidance of $84-86 mln. The momentum is expected to continue in Q4 with GDYN expecting revs of $95-97 mln, which computes as +22-24% yr/yr. In fairness, some of this outsized growth is coming from recent acquisitions, JUXT and Mobile Computing. But it is still good growth.
• Similar to the first half of 2024, GDYN said that demand trends improved across its customer base in Q3. Customers are funding key programs and initiatives. At many customers, there is a sense of urgency to complete projects by the end of the year. Numerous initiatives that were held back due to the economic cycles are now being prioritized for completion.
• Taking a look back, GDYN said on the Q1 call that customers were focusing on sharing their outlooks and forecast plans but not aggressively spending. In Q2, customers were more willing to release budgets and implement their plans. GDYN believes the positive demand environment it saw in Q3 was a result of steady improvements over the past couple of quarters, and it expects that to continue into Q4 and beyond.
• GDYN noted that it set a new record for partnership-influenced revenue in Q3. Year-to-date, partnership revenue contribution accounted for 18% of total revenue. Also, its focus on hyperscalers has paid off with three of the largest being in the top five for partnership revenue. GDYN also has substantially expanded its AI portfolio and now has 30+ service offerings targeting Fortune 500 companies across various industries.
• In terms of the recent acquisitions, Grid Dynamics says each company brings a unique set of capabilities. JUXT is known for delivering complex end-to-end services, from design and user experience to deep functionality and ongoing managed services with a focus on banks and financial institutions. Mobile Computing is a leader in digital transformation with a suite of offerings, spanning industries including manufacturing, CPG and financial services.

Overall, investors are clearly pleased to see Grid Dynamics join the S&P SmallCap 600. Index funds will be required to buy GDYN, but the milestone also should raise the company's profile among investors generally. It also shows how much the company has grown in recent quarters with GDYN knocking on the door of reporting its first-ever $100 mln quarter. We think this bodes well for 2025 assuming demand continues to improve.