Market Commentary: 1 Buffett Stock Set To 4x
Buffett rarely ventures into the technology sector but he did make a huge bet on the future of data via Snowflake, which his Berkshire Hathaway investment vehicle snapped up pre-IPO.
The future of Artificial Intelligence (AI) hinges on data, and that’s Snowflake’s playground. In an AI-dominated world, data management solutions like Snowflake’s will be pivotal, which is why one analyst in particular is highly bullish on Snowflake, placing a $600 price target on the firm, corresponding to a possible return of more than 4x.
Is that crazy or crazy like a fox?
Key Points
- One analyst believes the stock could quadruple in the next few years.
- Nearly a third of Forbes Global 2000 companies are clients, relying on Snowflake for data management and emerging AI technologies.
- With a market cap of $49 billion and 20x sales, projections suggest a near $200 billion valuation in five years.
Snowflake’s Competitive Edge
Snowflake’s unique architecture allows businesses to consolidate data from disparate systems without hassling IT teams. The platform supports data engineering, lakes, warehousing, and sharing, which is particularly important for training AI models.
And, unlike its big tech competitors, Snowflake offers cloud neutrality, meaning it runs across all three major public clouds. That’s a primary reason why the platform is a market leader in data warehousing, now serving nearly one-third of the Forbes Global 2000.
Many of the world’s largest enterprises rely on Snowflake, not just for data management but as a logical center for technologies like machine learning and generative AI.
Chilled but Rising
Snowflake has been posting strong numbers, increasing revenues to $674 million in Q2, a 35.5% year over year increase. That follows 47.6% the quarter prior and continues a sustained streak of annual increases.
Despite some challenging macroeconomic conditions, Snowflake trades at at 20x price-to-sales ratio. And some analysts forecast annual revenues will compound at over 30% for the next 6 years.
Remarkably, revenues have grown by double-to-triple digits in each quarter for the past 12. On the downside, operating income has been negative for 12 quarters straight, too.
If Snowflake can boost revenues as forecast through to the end of the decade, its valuation today could be dwarfed. If analysts are right, the $600 price target would translate to a valuation of close to $200 billion.
Will Snowflake hit such a lofty level?
The Berkshire Seal of Approval
Warren Buffett’s Berkshire Hathaway has given it a thumbs up, and taken a stake in Snowflake, albeit a small one.
The Buffett holding adds an extra layer of investor confidence to an already strong story. As the de facto leader in data warehousing and a key player in the future of AI, Snowflake presents a compelling long-term opportunity.
Moreover, its customer base is a who’s who of Fortune 500 firms, adding to the credibility of the stock as a long-term investment play.
A Snowball’s Chance in… Wall Street?
Snowflake presents a compelling case for both the data management and AI markets. With robust financials, a clear competitive edge, and the endorsement of one of the most respected names in investing, the company looks poised for success.
Snowflake reported a free cash flow of $76.9 million in Q3 2023, demonstrating its ability to sustain and invest in future growth. This financial stability, combined with its massive addressable market and growth projections, suggests that the company could indeed quadruple before the turn of the decade.
So, is Snowflake stock a buy? For those willing to stomach some level of risk and bet on the future of data and AI, Snowflake appears to be a strong candidate for robust long-term growth.
