DOCS Q2 Deep Dive: AI Product Adoption Fuels Revenue Growth, Margins Face Investment Pressures

Medical professional network Doximity (NYSE:DOCS) reported revenue ahead of Wall Street’s expectations in Q2 CY2026, with sales up 7.3% year on year to $156.6 million. The company expects next quarter’s revenue to be around $170.5 million, close to analysts’ estimates. Its non-GAAP profit of $0.29 per share was 4.2% below analysts’ consensus estimates.

Is now the time to buy DOCS? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Doximity’s second quarter results were met with a notably positive market reaction following revenue that surpassed Wall Street expectations and ongoing momentum in its healthcare professional network. Management attributed the quarter’s growth to increased adoption of AI-powered clinical tools and rising engagement from both hospital and pharmaceutical clients. CEO Jeffrey Tangney highlighted, “Quarterly active workflow prescribers grew more than 30% year-on-year to record highs with nearly half using our AI tools,” underscoring the platform’s expanding influence among medical professionals.

Looking ahead, management’s updated guidance is shaped by expectations that commercial AI products will drive both new revenue streams and deeper client engagement, particularly as adoption spreads across large hospital systems and pharmaceutical firms. CFO Matthew Sonefeldt emphasized the company’s focus on deliberate investment in AI, noting that “higher-than-expected AI usage creates a good problem for Doximity, and we’ll expand our AI investment to capture the significant long-term opportunity ahead.” While management anticipates a moderation in near-term profit margins given these investments, they believe the groundwork laid in AI will support sustained growth and efficiency gains over the longer term.

Key Insights from Management’s Remarks

Doximity’s leadership credited the quarter’s performance to accelerating clinician usage of its AI tools, new commercial opportunities in AI search, and early expansion of its hospital client base.

• AI study validation: Management highlighted results from the independent NOHARM study, where Doximity’s Ask product demonstrated the lowest clinical error rates and highest safety ratings among U.S. clinical AI models. This outcome, attributed to an integrated drug reference engine and peer-reviewed oversight, bolstered credibility with hospital clients evaluating AI solutions for safety and reliability.
• Rapid user adoption: The company reported a significant increase in physician engagement, with quarterly active workflow prescribers up more than 30% year-over-year and nearly half utilizing AI tools. AI prompt volume rose over 25% quarter-on-quarter, and AI Scribe users grew tenfold in July, indicating accelerating demand for digital clinical support.
• Commercial AI traction: Doximity noted early success in commercializing its AI search product, signing 165 health system AI clients—including several top U.S. hospitals—and onboarding more than two dozen pharma programs. Management believes these wins position the company to benefit as hospital and pharma buyers shift toward enterprise-grade, privacy-compliant AI solutions.
• Pharma and hospital diversification: The company observed robust demand from both pharmaceutical and hospital segments. Pharma clients are increasingly allocating “innovation budgets” to AI search, while hospitals view Doximity’s offerings as cost-effective alternatives to legacy clinical decision support and scribe services.
• Margin impact from AI investment: Management acknowledged that heavy investment in AI infrastructure and talent led to higher costs and contributed to reduced operating margins compared to the prior year. Sonefeldt explained that 90% of AI expenses are focused on supporting clinical suite demand, with expectations for gross margins to remain in the mid-to-high 80% range as the company scales.

Drivers of Future Performance

Doximity expects its future performance to be shaped by accelerating AI product adoption, deliberate investment in AI capabilities, and evolving customer purchasing trends across hospitals and pharma.

• Enterprise AI adoption: Management believes growth will be driven by expansion into hospital systems and broader enterprise deployment of AI-powered products. As hospitals increasingly formalize their use of AI and seek secure, compliant platforms, Doximity’s reputation for safety and accuracy is expected to support further client wins and stickiness.
• AI monetization and contract evolution: The ongoing rollout of AI search and scribe products is expected to unlock new revenue opportunities, supported by a shift toward longer and larger customer contracts. Management plans to expand inventory and therapeutic coverage, with feedback-driven product enhancements aimed at increasing deal velocity and broadening the customer base.
• Margin headwinds and efficiency gains: While investment in AI infrastructure and R&D will continue to weigh on margins in the near term, management anticipates that economies of scale, product optimization, and improved revenue sequencing will support margin recovery over time. The company also sees potential for operating leverage as AI monetization ramps and customer contracts grow in size and duration.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the pace at which hospitals formalize enterprise AI adoption and integrate Doximity’s tools into clinical workflows, (2) the progression of pharma innovation budgets and the resulting impact on AI search monetization, and (3) the evolution of contract structures and customer engagement in the AI suite. Continued growth in AI prompt and scribe usage, as well as expansion into new therapeutic categories, will also be closely tracked.

Doximity currently trades at $31.91, up from $20.66 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).

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