Shares of cloud data firm Snowflake (SNOW) have been trending higher as of late alongside the broader basket of oversold hyper-growth stocks. Indeed, the high-growth trade likely overshot to the downside, as investors rushed to the exits in anticipation of rate hikes and an associated slowdown in economic growth.
Though Snowflake could stand to see a steep sales slump in the face of a 2023 recession, given its choppy usage-based revenue recognition model, I’d argue that robust IT spending and a mild recession could pave the way for far better-than-expected results.
Looking ahead, CIOs expect to spend a considerable sum on Snowflake’s platform, even as the economy takes a few steps back. Snowflake isn’t just another expense that enterprises wish to cut during tough times. With a growing number of applications, the data lake and warehousing firm are quickly becoming a critical part of day-to-day operations for firms with swelling data sets.
Remarkably, Snowflake beat out cybersecurity software firm CrowdStrike (CRWD) in a survey of top CIOs on where they plan to spend their budgets. Cybersecurity measures are of the utmost importance for firms amid rising cybersecurity threats. CrowdStrike has an incredibly robust platform that’s more of a necessity than a nice-to-have for firms who understand the full extent of the risks of not being sufficiently protected from cyber threats.
With Snowflake spreading its wings into new verticals, which now include cybersecurity workloads, a recession may be unable to stop firms from spending growing amounts on the Snowflake platform. Like it or not, data is still flowing in, and if it’s not leveraged appropriately, some value could be lost.
On TipRanks, SNOW scores a 1 out of 10 on the Smart Score spectrum. This indicates a potential for the stock to underperform the broader market.
Snowflake: The Time Value of Data is a Real Phenomenon
Snowflake CEO, Frank Slootman, put it best with the concept of the “time value of data.” The quicker firms can analyze timely data, the more value they can generate from their businesses.
Indeed, harnessing the power of data is akin to having a cheat code in a video game. And as times get more challenging, firms may wish to unlock even more from their data to better navigate a recessionary storm.
Even if Snowflake usage cools, I view current guidance as overly conservative. The usage-based revenue model is bound to cause more volatility in the stock. However, one must not discount the potential for positive surprises as the company continues to add to its ecosystem. There’s a reason why many analysts are upgrading the stock lately, despite the recent plunge in the stock and its still-frothy valuation. The company is one of few that can grow its way out of this tech-driven downturn.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, SNOW stock comes in as a Strong Buy. Out of 29 analyst ratings, there are 23 Buy recommendations, five Hold recommendations, and one Sell recommendation.
The average Snowflake price target is $193.72, implying an upside of 21.32%. Analyst price targets range from a low of $120 per share to a high of $295 per share.
Snowflake Making All the Right Moves
It’s not just the “time value of data” phenomenon that could induce further spending over the medium term. Snowflake has been making intriguing deals which have made its offering even more compelling. The firm’s acquisition of Streamlit could help bolster usage from data scientists and other professionals. Further, recent offerings, including real-time data analysis and cybersecurity workloads, are sure to attract even more IT dollars.
CIOs expect to spend more on Snowflake than many other technologies. The magnitude of spending may be far more sizable than many may think, as the company continues raising the bar on its innovations.
More recently, Snowflake extended its partnership with Protecto to leverage AI technology to improve upon data privacy and governance. Undoubtedly, data protection is a big deal, especially in the cloud. The deal is intriguing and could be one of many to come as Snowflake looks to stay many steps ahead of its peers in the big data scene.
The Bottom Line on Snowflake Stock
Though Snowflake has rivals, most notably data warehouse offerings from the public cloud providers, it could prove tough to keep up with Snowflake’s pace of innovation. Snowflake already allows firms to free their data. As the firm continues unveiling new products, it may enable customers to do more with their data compared to competitors.
Looking ahead, I’d expect Wall Street analysts to go from lowering price targets to raising them again. The stock seems to be staging an upside rally that may last into this year’s end. At just shy of 35 times sales, SNOW stock doesn’t look cheap, but it may be undervalued, given its growth profile keeps getting better.
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