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Snowflake: Navigating Near-Term Headwinds, But Poised as Long-Term AI Winner
Even with these headwinds, many analysts remain positive on Snowflake’s long-term trajectory, viewing an acquisition and the transition to the cloud as two catalysts for the stock. SNOW YTD mountain Snowflake shares year to date “We view SNOW as one of the best positioned stories in infrastructure to benefit from generative AI tailwinds,” wrote Jefferies analyst Brent Thill in a May note to clients. He has a buy rating on Snowflake.
The Neeva Acquisition
He sees the acquisition of web search startup Neeva as another advantage enabling Snowflake to capitalize on the swarm of AI workloads moving to the cloud. Neeva’s AI software combining search with large language models is key to this thesis and should complement Snowflake’s aim to enable customers to integrate ChatGPT and chatbots into their platforms to find information — while also retaining privacy. The purchase should also boost Snowflake’s nontechnical user base and improve its conversation and search capabilities, said Piper Sandler’s Brent Bracelin, reiterating his overweight rating.
The Importance of Snowpark
Snowflake’s Snowpark, which allows developers to write code in their preferred language, is also key to its AI reach. About 30% of customers used the platform on a weekly basis, with consumption improving 70% quarter over quarter, CEO Frank Slootman said during the company’s most recent earnings call.
Analysts, including Goldman Sachs’ Kash Rangan, are looking ahead to Snowflake’s Summit conference in Las Vegas this month for further clues into its AI initiatives and progress. “We expect Snowflake Summit … to be a key catalyst for the stock as Snowflake updates LT financial targets and solidifies its AI product roadmap,” Rangan wrote. He has a buy rating on the stock. Deutsche Bank’s Brad Zelnick said in a recent note that AI, among other developments, should drive customer stickiness and improved use cases.
The Bearish View
Not everyone seems optimistic about Snowflake’s AI potential, however. Redburn called the cloud company a “likely” loser in a May note to clients. The firm said the stock should not be viewed as a buying opportunity, citing its “inflated” multiple and steep valuation relative to companies such as Palo Alto Networks. “Hyperscalers have a clear path to driving reacceleration through ML/AI applications,” wrote analyst Alex Haissl in a May note. “However, for Snowflake, the deceleration and weak outlook stem partly from emerging structural hurdles, in our view.”