2022 was brutal for tech stocks. Apple (AAPL) declined by close to 30%, Amazon (AMZN) plummeted by 50%, and Alphabet (GOOGL) dropped by nearly 40%. While these dips create tough-to-pass-up buying opportunities for long-term investors, some less well-known tech stocks might offer even more enticing bargains.
One of those companies, Snowflake (SNOW), took a beating last year too. However, many — including Berkshire Hathaway’s top brass — agree the price dip is not reflective of any fundamental deterioration.
This cloud computing-based data company is at the start of a growth curve that could reward those who invest today. The company has already built a solid revenue pipeline, which will grow as data warehouses and lakes become more crucial to businesses in the coming years.
A Closer Look at Snowflake
Based on current figures, Snowflake is just scratching the surface of a massive market opportunity. With a market cap near $45 billion, it has a lofty valuation for such a young firm, but is a minnow in size still when compared to better known tech titans, like Apple, Amazon and Alphabet.
A 10x gain for FAANG stocks is nigh impossible now given their “mostly” trillion dollar market caps but it’s certainly within the realm of possibility for Snowflake still.
Amazon’s Redshift market share in the data warehousing category rivals that of Snowflake, and that is a concern for investors; nobody likes to see a giant FAANG swimming in the same waters. But the future looks bright.
By 2026, Snowflake estimates its total addressable market (TAM) could be worth $248 billion. This value is based on the increasing demand for data science, data warehouses, data lakes, and machine learning. The data warehouse market alone is expected to reach $45.2 billion in revenue by 2032. Considering Snowflake holds over 18% market share in this category, the company could add billions more to its top line over the coming decade.
Is Exponential Growth Around the Corner?
Snowflake is undoubtedly on an upper trajectory. It is currently sitting at the beginning of a potentially massive growth curve. Based on Snowflake’s Q3 report, $557 million in revenue reflects 67% year-over-year growth. Impressively, SNOW’s adjusted net income more than tripled, reaching $0.11 per share — up from $0.03 per share in the same 2021 period.
Frank Slootman, Chairman and CEO, said, “Our non-GAAP product gross margin came in at 75%, and we continue to drive strong growth at scale, coupled with strength in unit economics, operating profit, and free cash flow.“
Although Snowflake generated $1.86 billion in revenue over the trailing 12 months, this doesn’t even represent 1% of the anticipated TAM in 2026. With the company’s rapidly growing customer base and expanded offerings, Snowflake is on track to carve out a much greater share of the TAM.
At the end of Q3 2022, Snowflake had 7,292 customers, jumping 34% compared to the prior-year period. However, the company’s million-dollar customer club is particularly worth your attention. The company now has 287 customers with a trailing 12-month product revenue exceeding $1 million, which is no easy feat. This figure represents 94% year-over-year growth.
By 2025, Snowflake’s revenue is anticipated to more than double its current fiscal year estimate, hitting around $4.3 billion. If this trend continues and the company can 2x its revenue again by 2028, which is not out of the question, a $100k investment today has the potential to 10x before the end of the decade.
Should You Buy Shares of SNOW?
There’s a reason why Snowflake has been receiving a lot of attention from investors lately. Despite all the positive press and the beaten-down price, the company still has a high valuation. This factor, along with other variables, could limit near-term gains. Also, Snowflake remains a “GAAP-unprofitable” company, so concerns remains valid until the economy turns around.
As the bear market drags on and macroeconomic headwinds strengthen, there are good reasons to be hesitant to invest in Snowflake. However, if your goal is to buy and hold long-term, now could be a smart time to dip a toe in the water. After all, Snowflake is growing like a weed, and it’s far from done.
The best days are likely ahead, so buying shares now offers the potential be a highly lucrative bet. If you plan to hold onto your investment for the next five to ten years, buying now means you could be part of this company’s growth story.