Snowflake is the IBD Stock of the Day as software growth stocks start off 2024 in the black after big gains last year. Earnings for SNOW stock aren't due until early March, but ServiceNow will kick off reports from enterprise software makers on Wednesday.
On the stock market today, SNOW stock rose 3.3% to close at 205.58.
Snowflake sells data analytics software that runs on cloud-computing platforms. Also, the company has evolved into a cloud data-management software provider. Amazon Web Services, the cloud business of Amazon.com, is a key Snowflake partner via Snowflake software on AWS computer servers.
Meanwhile, SNOW stock jumped 38% in 2023 while the iShares Expanded Tech-Software ETF — comprised of many of the major enterprise software players — was up 58%.
Naturally, many investors wonder how much upside can be left for software stocks in 2024. The IGV index has gained about 6.7% so far this year. SNOW stock is up about 3%.
ServiceNow's management commentary on corporate demand for information technology products heading into 2024 could move software stocks.
On a weekly chart, SNOW stock is trying to break out from a flat base with a 202.83 entry point. The flat base was formed next to the top of a cup base forged in 2023.
Meanwhile, IBD's enterprise software group ranks a solid No. 24 out of 197 industry groups that IBD tracks.
SNOW Stock: Consumption Business Model
Snowflake customers can share data with their partners across multiple online storage systems using the company's data warehouse. In addition, the company enables applications to easily share searchable data.
Snowflake is among software companies with consumption-based business models. Its revenue is tied to how much data its customers crunch and store.
Under Snowflake's consumption-based model, customers buy credits upfront, say for $100,000. Customers consume the credits based on actual usage of compute and cloud services.
Customers use up the credits at any cadence over the duration of a contract. Snowflake recognizes product revenue as customers consume the credits. Traditional software-as-a-service companies usually recognize revenue fully when customers sign contracts.
Snowflake Stock: Gen AI Boost?
In addition, one big debate remains: how soon will companies monetize generative artificial intelligence?
Buzz around AI stocks has surged since startup OpenAI launched ChatGPT in November. Microsoft is OpenAI's biggest investor. OpenAI is a leader in generative AI technology, which uses massive data sets and computing power to create generally high-quality content, including text, images, video and even programming code.
Industry-specific versions of generative AI are expected to use company data to train AI models. Companies are racing to develop customized artificial intelligence for specific industries using their own proprietary data to train AI models. With its data storage and management tools, Snowflake expects to play a big role.
A material boost from generative AI projects may wait until 2025, said RBC Capital analyst Matthew Hedberg in a report.
"We believe a comprehensive data strategy is a precursor to a gen AI strategy," he said. "As such, we believe Snowflake is well positioned given the large amount of customer data on their platform and new gen AI offerings that should help drive incremental workload utilization. That said, we expect the more material impact on results is likely to come in 2025 and beyond as the new products go into general availability."
SNOW Stock: Big Software IPO
Founded in 2012, Snowflake pulled off the largest initial public offering ever by a software company in September 2020, raising $3.4 billion. But SNOW stock swooned in 2022 as analysts questioned its lofty valuation amid decelerating revenue growth.
Still, Snowflake's October-quarter revenue climbed 32% to $734.2 million, topping estimates of $713.8 million. In fiscal 2025, which starts with the April quarter, analysts project revenue growth of 30%.
Meanwhile, SNOW stock holds an IBD Composite Rating of 94, according to IBD Stock Checkup.
Snowflake Stock: Technical Ratings
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.
Further, Snowflake stock has an Accumulation/Distribution Rating of B. 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. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
Follow Reinhardt Krause on X, formerly called Twitter, @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
