Think of Snowflake (SNOW) as a proxy on the growth of cloud computing giants. A slowdown in cloud computing growth has been one concern for SNOW stock. But cloud computing services seem to be rebounding, boosted in part by corporate artificial intelligence projects.
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Snowflake sells data analytics and management software that runs on the cloud computing platforms of Amazon.com (AMZN), Microsoft (MSFT) and Alphabet‘s (GOOGL) Google. The company is evolving into a cloud data management platform.
In 2024, SNOW stock has gained 2%. Snowflake stock advanced 38% in 2023. The Nasdaq composite jumped 43% amid buzz over generative artificial intelligence and AI stocks. The S&P 500 climbed 24%.
Snowflake was recently featured in the New America section. Some analysts expect 2024 upside from the roll out of new products. A material boost from generative AI projects may wait until 2025, said RBC Capital analyst Matthew Hedberg in a report.
SNOW Stock: Artificial Intelligence Push
“We believe a comprehensive data strategy is a precursor to a gen AI strategy,” he said. “As such, we believe Snowflake is well positioned given the large amount of customer data on their platform and new gen AI offerings that should help drive incremental workload utilization. That said, we expect the more material impact on results is likely to come in 2025 and beyond as the new products go into general availability.”
Snowflake’s business model is consumption-based. One question is whether consumption-based software stocks are back in favor.
The company offers Snowflake Cortex, a new fully-managed service to provide access to large language models, AI models and vector search functionality.
Rival Databricks in June acquired generative AI startup MosaicML for $1.3 billion. In September, Databricks raised over $500 million at a $43 billion valuation. Investors included chipmaker Nvidia (NVDA), one of the hottest AI stocks.
Meanwhile, Snowflake recently announced the acquisition of artificial intelligence startup Neeva. Terms were not disclosed. In August 2022, Snowflake bought another AI startup, Applica.
On the plus side, SNOW stock had $4.9 billion in cash on its balance sheet as of July 31.
Amazon Partnership Expanded
In February of 2023, Snowflake’s board of directors authorized the repurchase of up to $2 billion of common stock. The program expires in March 2025.
Snowflake shares retreated more than 57% in 2022. One of the software industry’s most expensive stocks in 2020 and 2021, Snowflake’s trading multiple is down significantly. But analysts still debate the valuation of Snowflake stock amid stellar, but decelerating, revenue growth.
SNOW stock could get a boost from a recent multi-year expansion of its partnership with Amazon Web Services. Both companies will contribute to stepped-up marketing.
Snowflake has committed $2.5 billion in spending on AWS over the next five years as part of the deal. The two companies will expand strategic initiatives by developing industry solutions, deepening product integrations, increasing sales collaboration, and expanding marketing strategies. Snowflake and AWS currently have over 6,000 joint customers. About 84% of Snowflake customers run cloud workloads on AWS.
SNOW Stock: Biggest Software IPO
Snowflake aims to enable customers to access and distribute data across their business ecosystem, thereby accelerating business intelligence and advanced analytics.
Snowflake stock pulled off the largest initial public offering ever by a software company in September 2020. The Snowflake IPO raised $3.4 billion.
Snowflake hosted a user conference and analyst day in Las Vegas in June 2022. The company said new products in app development, data security and other areas will expand its total addressable market to $248 billion by 2027, up from $90 billion last year.
At the user event, the company addressed concern over its consumption-based revenue business model. Snowflake revenue is tied to how much data its customers crunch and store. One issue is that usage could slow during a recession.
Another issue is that customers view Snowflake as expensive if they don’t control usage. Some analysts say there’s less transparency and predictability than with a subscription-based SaaS business model.
When the company reported April-quarter 2023 earnings, Snowflake cut its full-year fiscal 2024 outlook. Snowflake lowered its forecast for product revenue growth to 34% to $2.6 billion from its earlier projection for 44% to 45% growth.
Snowflake Stock: Synergy With Cloud Computing Giants
Many companies are turning to cloud computing services as part of “digital transformation” projects that aim to gain business insights from crunching massive volumes of data. The cloud computing titans offer their own data analytics and management tools.
But the cloud giants make Snowflake’s platform available to their customers. The reason is Snowflake’s tools are better at some key tasks, such as letting companies compile, view, analyze and share massive amounts of data in an easy way.
Nearly two-fifths of Fortune 500 companies use Snowflake’s software in the cloud as they move away from on-premise data warehousing products from Teradata (TDC), Oracle (ORCL) and IBM (IBM).
Snowflake Stock: Competition Increasing
Further, Snowflake stock hit an all-time high of 429 in early December of 2020. But SNOW stock swooned amid analyst concerns over its lofty valuation.
Competition is increasing. Salesforce (CRM) recently introduced Genie, a real-time data solution, that could clash with Snowflake at some point.
Whether Amazon Web Services or Google cloud ratchet up competition remains a concern for SNOW stock. Hewlett Packard Enterprise (HPE), with its GreenLake platform, is another rival.
ServiceNow Veterans Lead Company
Snowflake stock bulls point to its seasoned management team as a strength.
Snowflake brought in Frank Slootman as chief executive in May 2019. Slootman had stepped down as CEO of ServiceNow in early 2017. Former ServiceNow (NOW) Chief Financial Officer Mike Scarpelli in 2019 also joined Snowflake in the same CFO position.
Unlike legacy, on-premise data management systems, Snowflake’s platform was built from the ground up for cloud computing. It provides 100% of its software over the internet.
Snowflake customers can share data with their partners across multiple online storage systems using the company’s data warehouse. Snowflake also enables easily searchable data to be shared among applications.
Snowflake’s data analytics tools became available on Amazon Web Services in 2015, Microsoft’s Azure in 2018 and on Google’s cloud platform in 2020.
SNOW Stock Fundamental Analysis
“While Snowflake is multi-cloud, it derives some 85% of its revenues from data analytics jobs deployed on Amazon Web Services, which is also Snowflake’s biggest rival with AWS Redshift,” UBS analyst Karl Keirstead said in a note.
“This ‘frenemy’ relationship is critical to Snowflake’s success,” Keirstead went on to say. “AWS benefits far more from Snowflake spending on (computing) and storage infrastructure resources than they lose in the form of foregone AWS Redshift revenues.”
Snowflake has focused on six core markets, including financial services, health care and life sciences, retail and consumer packaged goods, advertising media and entertainment, technology and the government sector.
On an adjusted basis, Snowflake’s Q3 earnings were 25 cents, up 127%. Analysts expected Snowflake to report adjusted profit of 16 cents per share.
Snowflake reported a loss of 65 cents using generally accepted accounting principles, or GAAP. That compares with a loss of 63 cents a year earlier. Analysts polled by FactSet expected Snowflake to report a loss of 76 cents on a GAAP basis.
Revenue climbed 32% to $734.2 million vs. estimates of $713.8 million.
Is Snowflake Stock A Buy Right Now?
Snowflake stock has a Relative Strength Rating of 89 out of a best-possible 99. The Relative Strength rating shows how a stock’s price performance stacks up against all other stocks over the last 52 weeks.
In addition, SNOW stock has an IBD Composite Rating of 94 out of 99, according to IBD Stock Checkup. The best growth stocks have a Composite Rating of 90 or better.
Meanwhile, Snowflake stock had an Accumulation/Distribution Rating of B, according to IBD MarketSmith analysis. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading.
As of Jan. 29, SNOW stock holds an entry point of 192.66. Snowflake stock has dropped out of a buy zone.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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