Think of Snowflake (SNOW) as a proxy on the growth of cloud computing giants. A slowdown in cloud computing growth has pressured SNOW stock. Investors are eyeing new product initiatives and traction in artificial intelligence under a new chief executive for Snowflake stock.
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Snowflake sells data analytics and management software that runs on the cloud computing platforms of Amazon.com (AMZN), Microsoft (MSFT) and Alphabet's (GOOGL) Google. Snowflake has been evolving into a cloud data management platform.
Chief Financial Officer Mike Scarpelli will present at the Goldman Sachs Communacopia and Technology conference on Sept. 12.
Second quarter Snowflake earnings topped Wall Street targets. But shares fell as the modest beat and guidance underwhelmed investors.
"A 2% product revenue beat in Q2, down from 5% in Q1, with product revenue growth dipping further to 29.5% year-over-year, likely
sews enough doubt in the investor conversation to keep shares under pressure in the near-term," said Morgan Stanley analyst Keith Weiss in a report. He added: "Waning optimization headwinds and emerging new product initiatives should support growth, but investors may need more concrete signals to get onboard."
Amid investor concern over stiff competition, SNOW stock has retreated about 42% in 2024. The iShares Expanded Tech-Software Sector ETF (IGV), an industry index that includes many big-cap software companies, is up 7%.
Also, Alphabet's Mandiant cybersecurity unit has been working with Snowflake to remedy a recent hacking incident that impacted customers such as AT&T (T), Ticketmaster and Nieman Marcus.
Meanwhile, Snowflake's valuation has plunged. However, IBD doesn't put much weight on P/E ratios and othervaluation metrics. On the other hand, here are sometime-tested trading rules.
SNOW Stock: Databricks Competition
While Amazon and Snowflake have partnered for cloud data services, Google's BigQuery platform is a Snowflake competitor. Also, the Microsoft Fabric cloud data analytics platform looms as a strong new rival.
Further, Snowflake faces stiff competition from privately held Databricks.
"Databricks' data intelligence platform plays in the cloud data management space," said Raymond James analyst Simon Leopold in a report. "And, Databricks' success has likely come in part at Snowflake's expense. In 2023, Databricks' grew sales 50% to $1.6 billion vs. Snowflake's $2.8 billion and 36% growth. Both companies have evolved and have increasingly expanded into each other's respective markets."
Analysts expect Databricks to launch an initial public offering. Timing is unclear.
Meanwhile, 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 Stock: New CEO
Shares plunged in February after the software maker reported earnings that beat Wall Street targets but revenue guidance for fiscal 2025 came in well below expectations.
The company announced its chief executive, Frank Slootman, will retire. Snowflake said a former top executive at Alphabet's (GOOGL) Google, Sridhar Ramaswamy, will be its new CEO. Moreover, Snowflake acquired artificial intelligence startup Neeva, where Ramaswamy was CEO, in 2023.
The board of directors authorized the repurchase of up to $2 billion of common stock in February 2023. As of March 1, Snowflake still had $1.4 billion remaining in authorized buybacks. The program expires in March 2025.
Snowflake stock advanced 38% in 2023. The Nasdaq composite jumped 43% amid buzz over generative artificial intelligence and AI stocks. The S&P 500 climbed 24%.
SNOW Stock: Consumption Business Model
Meanwhile, Snowflake's business model is consumption-based. Snowflake revenue is tied to how much data its customers crunch and store. One question is whether consumption-based software stocks are back in favor.
One issue is that customers view Snowflake as expensive if they don't control usage. Some analysts say there's less transparency and predictability than with a subscription-based SaaS business model.
Snowflake customers can share data with their partners across multiple online storage systems using the company's data warehouse. Snowflake also enables easily searchable data to be shared among applications.
Meanwhile, Snowflake and AWS currently have over 6,000 joint customers. About 84% of Snowflake customers run cloud workloads on AWS.
"While Snowflake is multi-cloud, it derives some 85% of its revenues from data analytics jobs deployed on Amazon Web Services, which is also Snowflake's biggest rival with AWS Redshift," UBS analyst Karl Keirstead said in a note.
In 2023, Snowflake committed $2.5 billion in spending on AWS over the next five years as part of a deal. The two companies agreed to expand strategic initiatives by developing industry solutions, deepening product integrations, increasing sales collaboration, and expanding marketing strategies.
Is Snowflake Stock A Buy Or Sell?
Snowflake stock has a Relative Strength Rating of only 11 out of a best-possible 99. The Relative Strength rating shows how a stock's price performance stacks up against all other stocks over the last 52 weeks.
In addition, SNOW stock has an IBD Composite Rating of 23 out of 99, according to IBD Stock Checkup. The best growth stocks have a Composite Rating of 90 or better.
Meanwhile, Snowflake stock had an Accumulation/Distribution Rating of D-plus, according to IBD MarketSmith analysis. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading.
As of Sept. 3, Snowflake stock does not have an entry point and is not in a buy zone. It needs to form a base to be actionable.
Further, check out IBD Stock Lists and other IBD content to find dozens more of the best stocks to buy or watch.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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