Snowflake is the IBD Stock of the Day as the enterprise software maker caps off a challenging year by nearing a fresh entry point. SNOW stock has gained 33% in 2023, rebounding from an outlook cut in May amid worries over its valuation and business model.
On the stock market today, Snowflake stock rose 1.8% to close at 190.67. SNOW stock now is on the verge of breaking out past a 192.66 cup-with-handle buy point.
Snowflake sells data analytics software that runs on cloud computing platforms. The company is evolving into a cloud data-management platform. Amazon Web Services, the cloud unit of Amazon.com, is a key Snowflake partner.
Heading into 2024, some analysts view Snowflake as a legit player in "generative" artificial intelligence amid investor angst over an AI bubble.
SNOW Stock: Big IPO, Valuation Issues
In addition, Snowflake stock pulled off the largest initial public offering ever by a software company in September 2020. The Snowflake IPO raised $3.4 billion. Snowflake basked in the glow of customer "digital transformation" projects. The projects aim to gain business insights from crunching massive volumes of data.
However, SNOW stock swooned in 2022 as analysts questioned its lofty valuation amid decelerating revenue growth.
Also, Snowflake stock plunged in May when it lowered its fiscal 2024 product revenue growth forecast.
Consumption Software Business Model
One overhang on Snowflake stock has been its consumption-based business model. Snowflake revenue is tied to how much data its customers crunch and store.
In late 2022, growth began slowing at Amazon and other cloud service providers as customers "optimized" spending. The trend in making cloud spending more efficient impacted Snowflake as well.
Snowflake's October-quarter results eased worries though it may not be out of the woods if a recession hits the U.S. economy.
Revenue climbed 32% to $734.2 million, topping estimates of $713.8 million. For the current quarter ending in January, Snowflake forecasts product revenue in the range of $716 million to $721 million vs. Wall Street estimates of $696 million.
In a note to clients, Deutsche Bank analyst Brad Zelnick said Snowflake's third-quarter results were "modestly ahead of expectations" and confirm "the broader stabilization trend we've seen across cloud consumption models."
He also noted that Snowflake didn't offer preliminary fiscal 2025 guidance. Some analysts say Snowflake management needs to issue guidance of 30%-plus product revenue growth in fiscal 2025 to drive the stock higher.
Snowflake customers can share data with their partners across multiple online storage systems using the company's data warehouse. In addition, the company enables easily searchable data to be shared among applications.
Snowflake Stock: AI Opportunity
Meanwhile, Snowflake is adapting to the rise of generative AI which prompted many companies to explore building customized AI for specific industries. It will use proprietary company data to train AI models.
Snowflake is ramping up AI products that will make it easier for cloud computing customers to use their own data to build AI models.
"We remain fundamentally long on SNOW as the company has accelerated product innovations around AI and data apps over the past several months," Jefferies analyst Brent Thill said in a report to clients. "We think a new product cycle will likely catalyze growth in a more meaningful way in (calendar) 2024 and into 2025 given most announcements are still in preview."
At Goldman Sachs, analyst Kash Rangan said in his note to clients: "We view Snowflake as well positioned to capitalize on a generational shift of data and analytics to the cloud. Rangan cited "strong secular tailwinds including cloud adoption, big data, artificial intelligence and secure data sharing."
SNOW Stock: Technical Ratings
Meanwhile, Snowflake stock has climbed above its 200-day moving average, a bullish signal. In addition, SNOW stock holds an IBD Composite Rating of 96, according to IBD Stock Checkup.
IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. Also, the best growth stocks have a Composite Rating of 90 or better.
SNOW stock owns an Accumulation/Distribution Rating of B-plus. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. Its current rating indicates more funds are buying than selling.
The rating, on a scale of A+ to E, measures institutional buying and selling in a stock. Further, A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
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