What is the outlook for gross margin and operating expenses, and how will that affect operating leverage?

Fundamentals & Operating Leverage

Braze’s upcoming Q2 FY2026 filing is expected to show a steady expansion of gross margin as the company continues to scale its high‑margin, subscription‑based engagement platform. Management has repeatedly emphasized “be Absolutely Engaging™” and the shift toward higher‑value, multi‑product contracts, which historically compress cost‑of‑revenue ratios in SaaS firms. At the same time, the firm is still investing heavily in sales & marketing and product development to capture market share in a crowded customer‑engagement space. Consequently, operating expenses are likely to rise, but the pace should be sub‑linear to revenue growth—i.e., a modest, disciplined increase rather than a runaway spend‑as‑you‑grow approach.

When gross margin improves faster than operating expense growth, Braze’s operating leverage improves: each incremental dollar of top‑line growth translates into a larger swing in operating income. In practical terms, a widening margin coupled with controlled SG&A spend should lift the operating‑margin trajectory, positioning the stock for upside if the market prices in this leverage upside. Conversely, if expense growth outpaces revenue, the leverage narrative weakens and could pressure the stock.

Trading Implications

* Bullish bias: If analysts’ consensus expects margin expansion and expense discipline, the stock could see a breakout above its recent resistance around $30‑$32 on the daily chart, with the 20‑day SMA turning upward. A move into the $35‑$38 range would reflect the market rewarding higher operating leverage.

* Bearish bias: Should the filing reveal operating expense acceleration (e.g., aggressive hiring or steep R&D spend) that eclipses revenue growth, the price could retest the $28‑$29 support zone and test the 50‑day SMA, indicating a weakening leverage story.

Actionable take‑away: Keep the Q2 results on the radar for the gross‑margin vs. SG&A split. An up‑beat margin outlook with modest expense growth justifies a long position or adding to existing holdings; a surprise on the expense side warrants a tight stop just below the recent low (≈$28) or a short‑cover if already long. In short, the operating‑leverage narrative will be the primary driver of Braze’s near‑term price action.