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.
XSnowflake 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 retreated 22%. Shares plunged after the software maker reported fourth quarter earnings that beat Wall Street targets but revenue guidance for fiscal 2025 came in well below expectations.
The company announced its chief executive, Frank Slootman, will retire. Snowflake said a former top executive at Alphabet's (GOOGL) Google, Sridhar Ramaswamy, will be its new CEO. Moreover, Snowflake acquired artificial intelligence startup Neeva, where Ramaswamy was CEO, in 2023.
The board of directors authorized the repurchase of up to $2 billion of common stock in February 2023. As of March 1, Snowflake still had $1.4 billion remaining in authorized buybacks. The program expires in March 2025.
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%.
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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.
In August 2022, Snowflake bought another AI startup, Applica.
Amazon Partnership Expanded
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.
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."
Moreover, 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 Q4 earnings were 35 cents, up 150% from a year earlier. Analysts expected Snowflake to report adjusted profit of 18 cents per share.
Revenue climbed 32% to $774.7 million, the enterprise software maker said. Analysts projected Q4 revenue of $760.9 million.
For fiscal 2025, Snowflake forecast product revenue growth of roughly 22% to $3.25 billion versus consensus estimates for 30% growth to $3.43 billion.
In addition, Snowflake withdrew its fiscal 2029 target of $10 billion in revenue.
Is Snowflake Stock A Buy Right Now?
Snowflake stock has a Relative Strength Rating of 21 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 52 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 E, according to IBD MarketSmith analysis. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading.
As of April 8, Snowflake stock trades below its 50- and 200-day moving averages. SNOW stock does not have an entry point and is not in a buy zone. It needs to form a base to be actionable.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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