Shares of data cloud company Snowflake (NASDAQ:SNOW) failed to launch following the firm’s latest quarterly results. While the numbers were still impressive, investors seem to have been unenthused by the underrated artificial intelligence (AI) stock. Still, I think Snowflake’s recent post-earnings stumble ought to be viewed as more of a buying opportunity than a signal that SNOW stock has hit a slippery slope. The Wall Street community maintains its “Strong Buy” rating on the stock for a reason.
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The company is serious about AI, and it’s more than willing to spend money to improve its footing in the AI race over the coming years. For this reason, I remain incredibly bullish, just like the many analysts praising the name.
Generative AI is Full of Potential, but Monetization is Key
Snowflake CEO Frank Slootman isn’t shying away from his firm’s longer-term AI ambitions. In a recent sitdown with CNBC, Slootman acknowledged that spending on AI initiatives will not come cheap and that AI business models need to be established. I think Slootman is right on the money.
On its own, new generative AI technologies are impressive, given their potential to transform entire businesses. However, monetization and solid business models may be vital to punching a ticket to the next leg of AI upside.
As interest rates keep climbing, investors will want to see more than just promises of growth several years from now. Higher rates call for higher profitability in the foreseeable future. Indeed, the headwind of higher rates seems to be pulling investors from getting too euphoric when it comes to the market’s top AI names — perhaps with the exception of Nvidia (NASDAQ:NVDA).
Though the term “AI bubble” may have floated around this year, I think we’re far from any repeat of the events that unfolded during the dot-com bust days! Back then, promises, overly-euphoric growth assumptions, and a “.com” were enough reasons to buy a stock. These days, investors seem excited about what AI has to offer. However, we don’t see “AI events” or new AI product launches acting as the needle movers as they used to be.
Earlier this year, an AI event may have been enough to jolt a stock. Nowadays, it seems like every firm has an AI plan. As someone wise once put it, “If everyone has it, nobody has it.”
Back to Snowflake. Slootman remains “super confident” that it can sort things out as the company works hard to play the long game regarding AI. Impressive capabilities are one thing, but developing an effective business model on top of the technology is another.
From AI Chips to Software and Infrastructure
For now, it seems doubtful that Snowflake will perform as well as AI chip kingpin Nvidia did over the past year. It seems like every firm has stockpiled Nvidia chips due to a sense of scarcity, but how many firms overbought AI chips over the past year?
It’s hard to say, but it’s not hard to imagine many firms may have bought a bit more than they need at this early phase in the AI boom. If there’s a limited supply of a hot commodity, you can be sure that the risk of overbuying may be seen as far less than the risk of being caught empty-handed as competing firms bolster their AI hardware firepower.
When it comes to the software side of the AI boom (think usage of Snowflake’s Data Cloud), there’s less sense of urgency at this juncture. As services are needed, though, Snowflake will be ready to aid its many clients as they look to build out their AI models. In that regard, Snowflake seems to be a terrific way for AI investors to play the long game.
Eventually, firms will have more than enough AI hardware to meet their needs. From there, such firms will need to spread AI-related investments toward software and infrastructure. Such a scenario benefits firms like Snowflake and could pave the way for many years’ worth of steady AI upside.
Is SNOW Stock a Buy, According to Analysts?
On TipRanks, SNOW stock comes in as a Strong Buy. Out of 30 analyst ratings, there are 25 Buys and five Holds.
The average Snowflake stock price target is $195.96, implying upside potential of 15.2%. Analyst price targets range from a low of $160.00 per share to a high of $235.00 per share.
The Bottom Line on SNOW Stock
The next phase of the AI boom may be less euphoric as firms go from “Look at the new AI products we have” to “Here’s how we’re going to monetize this technology.”
In this regard, Snowflake stands out above other firms with major skin in the AI game. Slootman is already looking at business models, which, I believe, suggests he’s skating toward where the puck is going next in AI rather than where it is currently.
For now, Snowflake stock is an underrated AI stock that I believe deserves its “Strong Buy” rating from the analyst community.
