Why Doximity Stock Is Soaring 38% After an Earnings Miss

A remarkable rally in Doximity (DOCS) stock captivated markets on Friday, August 7, 2026, as shares surged more than 80% in after-hours and premarket trading before closing up approximately 33% . The digital medical platform's dramatic move was fueled not by a traditional earnings beat, but by CEO Jeffrey Tangney's revelation that the company's new AI search tool earns "more than 10 times per search in revenue than it costs" to run . This disclosure, combined with a better-than-expected quarter and a massive short squeeze, propelled a stock that had previously been down 50% for the year .

AI Profitability and Revenue Outlook

The primary catalyst for the surge was Tangney's commentary on the margin potential of Doximity's AI search product. "It's early days on our AI search product, but I can tell you we're earning more than 10 times per search in revenue than it costs," he stated during the company's first-quarter fiscal 2027 earnings call . Tangney added that AI costs are expected to decrease as models become more efficient, further improving unit economics .

Doximity reported first-quarter revenues of $156.6 million, a 7% year-over-year increase that exceeded the consensus estimate of $151.7 million . The company also reported adjusted EBITDA of $74.8 million, representing a 48% margin that beat guidance . While adjusted earnings per share of $0.29 missed the $0.30 estimate, and non-GAAP gross margin slipped from 91% to 88% due to increased AI compute spending, investors focused on the AI growth narrative .

Management raised full-year revenue guidance by $6 million to a range of $671 million to $681 million . However, analysts believe this increase does not fully account for the AI search pipeline's potential. Piper Sandler analyst Jessica Tassan wrote that the raised outlook "does not reflect a significant contribution from the expanding AI commercial pipeline," calling management's approach "conservative" . Most AI search revenue contracted to date is expected to be recognized in the third quarter .

Product Momentum and Market Position

Doximity's AI search product, launched in late April, is gaining meaningful traction. The company has signed its first cohort of AI search customers across more than two dozen programs . Quarterly active workflow prescribers grew more than 30% year-over-year, with nearly half using AI tools, and AI prompt volume rose more than 25% from the prior quarter . The Scribe note-taking users grew tenfold in July compared to a year earlier .

The company pointed to an independent study by researchers from Stanford and Harvard that tested 24 clinical AI models on 1,100 real patient cases. Doximity's Ask product logged a 4.8% error rate, compared to 13.6% for Anthropic's best model . The company now counts 165 signed health system AI clients, including Northwestern, Penn Medicine, and the University of Michigan . Net revenue retention held at 107% overall and 112% for the top 20 customers .

The Short Squeeze Effect

The extraordinary upward move was amplified by a significant short squeeze. Heading into the earnings report, approximately 17% of Doximity's shares available for trading were sold short . As the stock surged, short sellers were forced to cover their positions by buying shares, adding fuel to the rally .

Doximity shares were down roughly 50% for the year before the results, with a market value of approximately $3.7 billion . The stock opened at $38.87 on Friday, reaching a high of $39.99 before closing at $27.40, still up 32.62% on the day . The surge was also aided by the unwinding of a sizable bearish bet against the company .

Outlook

For the second quarter, Doximity guided to revenue of $170 million to $171 million and adjusted EBITDA of $80.5 million to $81.5 million . The company expects gross margins to trend in the mid-to-high 80% range through the year as it invests in AI compute . CEO Tangney suggested that AI search is expanding the company's total addressable market, particularly within health and pharmaceuticals, and could support attractive long-term margins . Investors will now watch the third quarter, when most AI search revenue contracted to date is scheduled to be recognized, as a key indicator of the product's sustained impact .