Snowflake stock experienced a significant surge on Thursday following an upgrade by Scotiabank analyst Patrick Colville. Colville raised his rating for Snowflake (ticker: SNOW) to Sector Outperform from Sector Perform, while also increasing his target price to $212 from $137.
Currently, Snowflake shares are trading at $182.44, marking a 6.1% increase in recent Thursday trading and a 26% gain year-to-date.
Colville provides three main reasons for his more optimistic outlook on the company.
Strong Demand and Growth Potential
Firstly, Colville believes that the Street consensus forecast of 34% product growth for the January 2024 fiscal year is too conservative. He points to recent statements from Snowflake indicating that business trends are stabilizing. Furthermore, he notes that rival company Databricks has also revealed a similarly positive outlook, suggesting a sustained demand for pure-play analytics solutions.
New Product Cycle and Revenue Growth
Secondly, Colville expresses confidence in Snowflake’s ability to capitalize on a new product cycle in 2024 and 2025, particularly emphasizing their focus on artificial intelligence and data science applications. Consequently, he has raised his revenue growth projections for Snowflake in fiscal years 2025 and 2026.
Promising Long-Term Outlook
Lastly, Colville highlights Snowflake’s reiterated target of achieving $10 billion in product revenue by fiscal year 2029. According to the analyst, this ambitious long-term guidance serves as a testament to the company’s exceptional business model and further supports his positive stance.
In conclusion, Colville states that Snowflake is well-positioned to benefit from two critical trends: cloud adoption and data-driven decision-making. While some investors may already recognize this potential based on Snowflake’s valuation, Colville believes the company’s ability to surpass expectations is not fully appreciated.