Is This Buffett Stock The Next BIG Thing?

In a world drowning in data, Snowflake has been a lifeboat for businesses. Its cloud-based data warehousing capabilities allow organizations to manage a variety of data—structured, semi-structured, or unstructured—across different cloud services. Should a client wish to switch cloud providers, Snowflake’s service can facilitate that without a hitch.

Without Snowflake, companies would be at the mercy of cloud providers, and they have flocked to it in droves.

Key Points

• Snowflake’s cloud-based data warehousing services are invaluable for businesses managing diverse types of data and also offer a unique marketplace where datasets can be monetized, serving as a boon for AI development.
• With a net revenue retention rate of 142%, Snowflake’s pay-as-you-go billing model successfully keeps customers spending more over time.
• While Snowflake’s 21.8x sales valuation marks it as a high-risk investment, its stronghold in cloud data services and growing influence in the AI sector make it a compelling stock.

The AI Goldmine

One of Snowflake’s most promising capabilities is its data marketplace, a hub where data owners can monetize their datasets.

The implications for AI are staggering. AI models are data-hungry monsters that need a vast and varied diet of information for accuracy.

Imagine being an AI developer searching for data like a child in a candy store; Snowflake’s marketplace is a treasure trove of valuable data for AI model development.

It’s also a financial growth engine with the net revenue retention rate hitting 142%, meaning customers continue to spend more and more. Snowflake’s pay-as-you-go billing model aligns the company’s growth directly with that of its clients.

The flexible billing model has its drawbacks, though, because as companies cut costs usage of Snowflake’s services may decline.

So far, so good however. Snowflake recorded a 35.5% uptick in revenue in Q2, reaching $674 million.

A Roadblock to Profitability

Snowflake’s profitability—or lack thereof—is a glaring issue. Its operating expenses have ballooned to $736 million in Q2, outpacing its revenue growth.

Yet, Snowflake remains cash flow positive and has ample cash on its balance sheet. Between liquid cash and short-term investments about $3.7 billion sits in reserves.

With a whopping 21.8x price to last twelve months of sales, Snowflake is anything but a bargain. It’s a high-stakes bet on a company that has yet to prove its profitability. That valuation is not for the faint of heart. This company can’t afford an operational mis-step.

The Final Verdict

Could Snowflake be the next big thing? In a word, no. Its customer loyalty and ability to convert customers to spend more each year is a huge positive. It’s no wonder Buffett’s Berkshire Hathaway got in pre-IPO.

As a powerhouse in data cloud services with an eye on the ever-expanding AI landscape, it offers a compelling narrative for any investor willing to stomach the risk.

But don’t expect the ride to be smooth sailing, Snowflake may yet prove itself as the next big thing but not until it turns the profitability corner.