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Snowflake (SNOW) Slips 39% YTD: Is a Rebound on the Horizon?
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Snowflake (SNOW - Free Report) shares have dropped 39% in the year-to-date period, underperforming the Zacks Internet Software industry’s gain of 5.2% and the broader Zacks Computer & Technology sector's return of 14.3%.
SNOW has been suffering from stiff competition from the likes of Databricks, as well as increasing pricing pressure and growing GPU-related costs. Challenging macroeconomic conditions have been a headwind for SNOW’s near-term prospects.
SNOW Lowers 2025 Margin View
SNOW expects fiscal 2025 product revenues of roughly $3.3 billion, indicating 24% year-over-year growth, much slower than the 38% year-over-year growth it reported in fiscal 2024.
Snowflake lowered its fiscal 2025 margin guidance due to increased GPU-related costs as it aggressively invests in AI initiatives. For fiscal 2025, SNOW expects a non-GAAP product gross margin of 75% (down from previous guidance of 76%) and a non-GAAP operating margin of 3% (down from previous guidance of 6%).
YTD Performance
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for fiscal 2025 is currently pegged at 60 cents per share, down by 6.25% over the past 30 days and indicating a 38.78% year-over-year decline.
The consensus mark for fiscal 2025 revenues is currently pegged at $3.47 billion, suggesting 23.75% growth over fiscal 2024.
SNOW Stock Not Cheap
Snowflake’s near-term prospects remain foggy. SNOW stock is not so cheap, as the Value Style Score of F suggests a stretched valuation at this moment.
Snowflake stock is trading at a significant premium compared to the Zacks Internet Software industry. Its forward 12-month Price/Sales of 10.34X is higher than the industry’s 2.34X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
We don’t believe SNOW is going to rebound in the near term. Nevertheless, Snowflake’s long-term prospects remain intact, driven by its expanding portfolio and strong partner base.
Expanding Portfolio Aids Long-term Prospects
SNOW has introduced capabilities including Marketplace Listing Auto-Fulfillment & Monetization, account replication & failover, Query Acceleration Service, geospatial analytics and Snowpipe Streaming.
Iceberg tables, Hybrid tables, and Cortex Large Language Model (LLM) and machine learning-powered functions became available in public preview. These capabilities are expected to become generally available in fiscal 2025.
In the fiscal first quarter, Snowflake announced Arctic, its own LLM.
Snowflake recently launched Polaris Catalog — a vendor-neutral, open catalog implementation for Apache Iceberg — the open standard of choice for implementing data lakehouses, data lakes and other modern architectures.
Polaris Catalog is supported by Iceberg’s open-source REST protocol, which provides an open standard for users to access and retrieve data from any engine that supports the Iceberg Rest API, including Apache Flink, Apache Spark, Dremio, Python, Trino and more.
Polaris Catalog offers enterprises and the entire Iceberg community new levels of choice, flexibility, and control over their data, with full enterprise security. It offers Apache Iceberg interoperability with Amazon’s (AMZN - Free Report) cloud division Amazon Web Services (“AWS”), Confluent, Dremio, Google Cloud, Microsoft (MSFT - Free Report) Azure, Salesforce and more.
Strong Partner Base: A Key Catalyst
SNOW is benefiting from an expanding partner base that includes Amazon, Microsoft, NVIDIA (NVDA - Free Report) , Fiserv, EY, Deloitte, LTIMindtree, Next Pathway and S&P Global, among others.
Its collaboration with NVIDIA will help customers and partners build customized AI data applications in its platform powered by NVIDIA AI.
Snowflake has adopted NVIDIA AI Enterprise software to integrate NeMo Retriever microservices into Snowflake Cortex AI, its fully managed LLM and vector search service. The integration will help enterprises to smoothly connect custom models to diverse business data and deliver highly accurate responses.
Snowflake and Microsoft recently announced an expanded partnership that plans to offer an interoperability experience between Snowflake and Microsoft Fabric OneLake. The interoperability is possible due to their support for the industry’s leading open standards for analytical storage formats, Apache Iceberg and Apache Parquet.
Snowflake also announced Snowflake Data Clean Rooms to customers in AWS East, AWS West and Azure West. SNOW leveraged its acquisition of data clean room technology provider Samooha to launch the solution.
Conclusion
Snowflake is a risky bet in the near term, given its modest growth prospect and a stretched valuation.
Moreover, the shares are trading below the 50-day moving average, indicating a bearish trend.
SNOW Trades Below 50-Day SMA
Image Source: Zacks Investment Research
SNOW currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. However, investors who already own the stock may expect the company's growth prospects to be rewarding over the long term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Snowflake (SNOW) Slips 39% YTD: Is a Rebound on the Horizon?
Snowflake (SNOW - Free Report) shares have dropped 39% in the year-to-date period, underperforming the Zacks Internet Software industry’s gain of 5.2% and the broader Zacks Computer & Technology sector's return of 14.3%.
SNOW has been suffering from stiff competition from the likes of Databricks, as well as increasing pricing pressure and growing GPU-related costs. Challenging macroeconomic conditions have been a headwind for SNOW’s near-term prospects.
SNOW Lowers 2025 Margin View
SNOW expects fiscal 2025 product revenues of roughly $3.3 billion, indicating 24% year-over-year growth, much slower than the 38% year-over-year growth it reported in fiscal 2024.
Snowflake lowered its fiscal 2025 margin guidance due to increased GPU-related costs as it aggressively invests in AI initiatives. For fiscal 2025, SNOW expects a non-GAAP product gross margin of 75% (down from previous guidance of 76%) and a non-GAAP operating margin of 3% (down from previous guidance of 6%).
YTD Performance
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for fiscal 2025 is currently pegged at 60 cents per share, down by 6.25% over the past 30 days and indicating a 38.78% year-over-year decline.
Snowflake Inc. Price and Consensus
Snowflake Inc. price-consensus-chart | Snowflake Inc. Quote
The consensus mark for fiscal 2025 revenues is currently pegged at $3.47 billion, suggesting 23.75% growth over fiscal 2024.
SNOW Stock Not Cheap
Snowflake’s near-term prospects remain foggy. SNOW stock is not so cheap, as the Value Style Score of F suggests a stretched valuation at this moment.
Snowflake stock is trading at a significant premium compared to the Zacks Internet Software industry. Its forward 12-month Price/Sales of 10.34X is higher than the industry’s 2.34X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
We don’t believe SNOW is going to rebound in the near term. Nevertheless, Snowflake’s long-term prospects remain intact, driven by its expanding portfolio and strong partner base.
Expanding Portfolio Aids Long-term Prospects
SNOW has introduced capabilities including Marketplace Listing Auto-Fulfillment & Monetization, account replication & failover, Query Acceleration Service, geospatial analytics and Snowpipe Streaming.
Iceberg tables, Hybrid tables, and Cortex Large Language Model (LLM) and machine learning-powered functions became available in public preview. These capabilities are expected to become generally available in fiscal 2025.
In the fiscal first quarter, Snowflake announced Arctic, its own LLM.
Snowflake recently launched Polaris Catalog — a vendor-neutral, open catalog implementation for Apache Iceberg — the open standard of choice for implementing data lakehouses, data lakes and other modern architectures.
Polaris Catalog is supported by Iceberg’s open-source REST protocol, which provides an open standard for users to access and retrieve data from any engine that supports the Iceberg Rest API, including Apache Flink, Apache Spark, Dremio, Python, Trino and more.
Polaris Catalog offers enterprises and the entire Iceberg community new levels of choice, flexibility, and control over their data, with full enterprise security. It offers Apache Iceberg interoperability with Amazon’s (AMZN - Free Report) cloud division Amazon Web Services (“AWS”), Confluent, Dremio, Google Cloud, Microsoft (MSFT - Free Report) Azure, Salesforce and more.
Strong Partner Base: A Key Catalyst
SNOW is benefiting from an expanding partner base that includes Amazon, Microsoft, NVIDIA (NVDA - Free Report) , Fiserv, EY, Deloitte, LTIMindtree, Next Pathway and S&P Global, among others.
Its collaboration with NVIDIA will help customers and partners build customized AI data applications in its platform powered by NVIDIA AI.
Snowflake has adopted NVIDIA AI Enterprise software to integrate NeMo Retriever microservices into Snowflake Cortex AI, its fully managed LLM and vector search service. The integration will help enterprises to smoothly connect custom models to diverse business data and deliver highly accurate responses.
Snowflake and Microsoft recently announced an expanded partnership that plans to offer an interoperability experience between Snowflake and Microsoft Fabric OneLake. The interoperability is possible due to their support for the industry’s leading open standards for analytical storage formats, Apache Iceberg and Apache Parquet.
Snowflake also announced Snowflake Data Clean Rooms to customers in AWS East, AWS West and Azure West. SNOW leveraged its acquisition of data clean room technology provider Samooha to launch the solution.
Conclusion
Snowflake is a risky bet in the near term, given its modest growth prospect and a stretched valuation.
Moreover, the shares are trading below the 50-day moving average, indicating a bearish trend.
SNOW Trades Below 50-Day SMA
Image Source: Zacks Investment Research
SNOW currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. However, investors who already own the stock may expect the company's growth prospects to be rewarding over the long term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.