Think of Snowflake (SNOW) as a proxy on the growth of cloud computing giants. A slowdown in cloud computing growth has pressured SNOW stock. Investors are eyeing new product initiatives and traction in artificial intelligence under a new chief executive for Snowflake stock.
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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. Snowflake has been evolving into a cloud data management platform.
Whether Snowflake stock is a buy depends on fundamental and technical factors as well as each investor’s own goals, strategy and risk tolerance.
Third quarter earnings for SNOW stock are due Nov. 20. Analysts project adjusted EPS of 15 cents, down 39% from a year earlier. Revenue is expected to climb 22% to $899 million.
“We expect SNOW to deliver solid Q3 results and nudge fiscal year estimates higher,” said Evercore ISI analyst Kirk Materne in a report. “While the stock remains in ‘show me’ mode, we believe that even a slight bump to the Q4 guide could be enough to build on some of the recent gains, with the key to unlocking more upside being a stabilization in revenue growth coupled with operating margin expansion.”
Meanwhile, Snowflake recently hosted its annual developer conference, Build 2024, where it provided an update on various new products.
“Despite being known for its expertise in structured data warehousing and its best-in-class SQL query engine, Snowflake management noted that more than 40% of its customers also use the platform for unstructured data analytics, providing evidence that Snowflake’s product expansion initiatives are taking hold in the highly competitive data analytics and AI market,” said William Blair analyst Jason Ader in a report.
Second quarter Snowflake earnings topped Wall Street targets. But shares fell as the modest beat and guidance underwhelmed investors.
Snowflake Stock: Databricks Competition
Amid investor concern over stiff competition with Databricks, SNOW stock has retreated about 34% in 2024. The iShares Expanded Tech-Software Sector ETF (IGV), an industry index that includes many big-cap software companies, has advanced 26%.
Analysts expect Databricks to launch an initial public offering. Timing is unclear.
Also, Alphabet’s Mandiant cybersecurity unit has been working with Snowflake to remedy a recent hacking incident that impacted customers such as AT&T (T), Ticketmaster and Nieman Marcus.
Meanwhile, while Snowflake’s valuation has plunged IBD doesn’t put much weight on P/E ratios and other valuation metrics. On the other hand, here are some time-tested trading rules.
SNOW Stock: New CEO
While Amazon and Snowflake have partnered for cloud data services, Google’s BigQuery platform is a Snowflake competitor. Also, the Microsoft Fabric cloud data analytics platform looms as a strong new rival.
Meanwhile, Snowflake stock pulled off the largest initial public offering ever by a software company in September 2020. The Snowflake IPO raised $3.4 billion.
Shares plunged in February after the software maker reported 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.
SNOW Stock: Consumption Business Model
Meanwhile, Snowflake’s business model is consumption-based. Snowflake revenue is tied to how much data its customers crunch and store. One question is whether consumption-based software stocks are back in favor.
One 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.
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.
Meanwhile, Snowflake and AWS currently have over 6,000 joint customers. About 84% of Snowflake customers run cloud workloads on AWS.
“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.
In 2023, Snowflake committed $2.5 billion in spending on AWS over the next five years as part of a deal. The two companies agreed to expand strategic initiatives by developing industry solutions, deepening product integrations, increasing sales collaboration, and expanding marketing strategies.
Is Snowflake Stock A Buy Or Sell?
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 stock has a Relative Strength Rating of only 15 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 37 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 Nov. 20, with Snowflake earnings due after the market close, SNOW stock does not have an entry point and is not in a buy zone. It needs to form a base to be actionable.
Further, check out IBD Stock Lists and other IBD content to find dozens more of the best stocks to buy or watch.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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