Snowflake (NYSE:SNOW) stock is fresh off a nasty snowfall following its recent quarterly results that coincided with a surprising CEO change and disappointing guidance. Since its 52-week peak of $237.72 per share, SNOW stock has shed about 33% of its value. With plenty of AI innovations recently unveiled (with more likely to come), shares of the severely underrated artificial intelligence (AI) stock now seem way too oversold.
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Undoubtedly, the last Snowflake quarter had a lot for investors to digest, perhaps too much such that they got a bad bout of indigestion. The softer guidance warranted a bit of punishment, especially given how lofty the multiple had become going into the quarter. That said, I think many investors are dismissing the capabilities of its new CEO, Sridhar Ramaswamy.
In my prior piece covering Snowflake post-earnings, I urged investors to give Snowflake’s new CEO the benefit of the doubt, given what he brings to the table in expertise, specifically on AI during his time at Alphabet’s (NASDAQ:GOOGL) Google and Neeva.
Given a chance, I’d say that Snowflake’s new leader, a scientist and visionary who knows AI probably better than most other high-level executives, may prove a worthy successor as Snowflake repositions its skis for the era of generative AI. With new AI products unveiled and freshly lowered expectations, I’m not hesitant to stay bullish on SNOW stock while it’s going for less than $160 per share.
Snowflake’s Arctic AI Model Could be a Huge Deal for the Enterprise
With the recent launch of Snowflake’s new open-source enterprise large language model (LLM) Arctic, which boasts an impressive 480 billion parameters, Snowflake has officially boarded the LLM train. It will also be interesting to see how the technology “optimized for complex enterprise workloads” will translate into growth over the next few years.
Of course, it’s going to take some time before Snowflake’s latest AI innovations propel its stock higher again. After the latest sell-off in SNOW shares, however, expectations seem modest enough that a surprising beat may be in the cards in the near future. Additionally, I find the reaction to the Arctic news to have been rather muted, especially given the potential advantages it may possess over other enterprise-focused LLMs on the market.
Indeed, AI model launches and announcements don’t seem as exciting in 2024 as in 2023. Some may view LLMs as becoming commoditized, with new chatbots seemingly being released regularly. From OpenAI to Anthropic to the Magnificent Seven companies, it seems every firm has a hand in the AI pie right now.
As the number of open-source and proprietary AI models grows over time, we may very well be witnessing a serious uptick in competition. That said, I don’t view LLMs as getting commoditized, not when there are so many ways that one model can differentiate itself from others. At the end of the day, it probably won’t matter how many offerings there will be; the herd will flock to the very best model for their needs, and it’s more than just about power or the number of parameters.
More efficient and custom-tailored AI models may be superior to raw power. And on that front, I view Snowflake as having the potential to make noise in AI. Reportedly, Snowflake’s Arctic is more cost-efficient to train than the competition, requiring one-eighth of the cost versus comparable rivals. That’s some serious efficiency that many investors may be sleeping on.
It’s More About AI Monetization in These Early Stages
After less than two years since ChatGPT took the world by storm, many of us are probably exhausted from hearing about the specs of the latest LLMs (parameters, benchmarks, etc.). We want to know how these innovations can make money and power growth. Until the air is clear on how these new models plan to earn money (some financial estimates would be nice), it may be tougher to raise the needle based on AI model launches alone.
Regardless, it may be a mistake to discount the growth potential of new LLMs like Arctic, given the edge it sports over the competition.
In the next innings of the AI boom, I’d expect efficiency and personalization to be the biggest differentiating factors between AI combatants. At this juncture, Snowflake seems to have both metrics down as it aims to empower and enable enterprise customers to harness the power of their data.
It’s not just the Arctic LLM that could help position Snowflake for AI upside. The company has no shortage of AI features to make users’ lives easier. From its Cortex service (for managing and improving software development processes) to Document AI (for transforming unstructured document data into structured data), it’s clear Snowflake can build a moat around its ecosystem by going all-in on AI.
Is SNOW Stock a Buy, According to Analysts?
On TipRanks, SNOW stock comes in as a Moderate Buy. Out of 37 analyst ratings, there are 24 Buys, 11 Holds, and two Sell recommendations. The average SNOW stock price target is $211.26, implying upside potential of 32.6%. Analyst price targets range from a low of $125.00 per share to a high of $260.00 per share.
The Bottom Line on SNOW Stock
Indeed, there’s a great deal of uncertainty about just how much bacon a new AI can pull in over the course of many years. And for a firm like Snowflake, which uses a volatile usage-based revenue recognition model, I’d argue that it’s far better to err on the side of caution when it comes to estimates, especially in the face of great economic uncertainty.
With a robust and growing AI presence (Arctic and other AI innovations) and an “AI man” now running the show, I think Snowflake’s best days (at least for a public company) are still ahead of it.
