Investment Alert: Buy Snowflake Under $140 Per Share
Disclaimer: Investment Alerts have a medium to long-term time horizon. These do not constitute financial advice and you should contact a financial advisor before deciding whether it is appropriate for your individual circumstances.
The world is about to change in ways that cannot be imagined as a result of artificial intelligence. Productivity will be enhanced. Jobs will be lost. The double-edged sword will slice through the economy, in good and bad ways.
Forbes commented that as much as 40% of the work currently performed by sales personnel will be automated by AI. Cathie Wood has predicted the productivity of knowledge workers will soar by 4x. If a productivity boom is indeed coming, who will benefit?
Wall Street forecasts Snowflake will be on the winning side, and has a $182 price target on its back. Is that consensus among 38 analysts right?
- The most optimistic analyst has a $500 price target on Snowflake, though the consensus among 38 analysts is $182 per share.
- Snowflake’s growth is being driven by strong demand from businesses of all sizes. The company has thousands of customers, including some of the world’s largest companies.
- Net revenue retention rate is a strong indicator of SNOW customer satisfaction. It means that customers are not only continuing to use the company’s products, but they are also increasing their spending.
As Data Needs Mushroom, Snowflake Wins
When Open AI launched ChatGPT, the most arresting result was how it had commoditized information. For example:
- A defense lawyer could provide it with the details of a prosecution’s case and ask it to provide a compelling defense that would persuade the jury to its argument.
- A marketing executive could instruct it to analyze successful campaigns and design a new, more effective one.
- A teacher could submit essays for review and invite it to provide feedback on grammatical errors, and typos, as well as to grade against a rubric.
All these examples and millions more boiled down to a tectonic shift in the world. As vast swaths of information are analyzed, data needs will mushroom. Yet the overwhelming majority of companies are anchored by stale systems that fail to unlock the power of their data. What if an organization could connect data from apps and the cloud – Azure, AWS, and Google Cloud – all into one place, and view it to gain insights that otherwise be lost. That’s what Snowflake enables organizations to do. As companies grow, Snowflake’s SaaS business serves them. It’s purpose-built to handle massive amounts of data, and is architected to ensure machine learning and AI apps are managed.
1 Statistic Says Snowflake Customers Are Huge Fans
Gale force winds have been blowing against many businesses as the Federal Reserve hiked rates, but Snowflake has bucked the trend. The last four quarters alone have produced year-over-year sales growth of 84.5%, 82.7%, 66.6% and 53.5%. Prior to those four quarters, management reported 8 straight quarters of growth over 100%.
Customer adoption of Snowflake’s toolkit is impressive and so too is the amount of money customers spend after they have been onboarded. An under-the-radar metric, called NRRR (net revenue retention rate) sits at 158% amount. That means customers are spending 58% more than they did last year over the same time frame; a clear sign the product is A+.
How High Can Snowflake Go?
If the majority of analysts are right, Snowflake is set to rise to $182 per share. But the most optimistic analyst on the Street has a $500 price target on Snowflake. Is it reasonable?
We find it hard to justify that level of optimism at the current time for one primary reason: profits, or more particularly, the lack of them. Snowflake has posted 13 straight quarters of negative operating income and investors appear to be sitting on the sidelines waiting for that trend to turn bullish.
Often stocks move sharply higher when it becomes clear that operating income will switch from red to black. Look no further than Amazon as a prime example. But Snowflake is still not showing signs that it will cross that chasm anytime soon. When it does, $500 is a possibility. Until then, $182 is quite reasonable, and suggests the stock is currently undervalued.
When the technical base formation has completed, expect Snowflake to test its resistance, and look for a powerful move thereafter up towards the analysts’ consensus price target.