SNOW - Snowflake: A Bargain When You Consider The Right Metrics (Rating Upgrade)

2024-06-05 07:04:37 ET

Summary

• Snowflake's stock has faced volatility due to revised revenue growth expectations, but the recent 40% drawdown seems overdone.
• The company's resilient backlog and strong bookings growth in the recent quarter suggest robust underlying demand, with revenue growth still exceeding the 30% threshold.
• Despite a slowdown in product revenue growth, the stock is undervalued based on EV/Sales/g ratio, compared to peers and has significant upside potential.
• The decision to include GPU-related costs in expenses and hire key personnel for AI capabilities indicates short-term margin pressure but potential long-term gains in the Generative AI trend.

Investment Thesis

Snowflake's ( SNOW ) stock has been a roller coaster, largely due to the AI frenzy driving up growth expectations earlier this year, but it faced a reality check when the company significantly trimmed its growth outlook for FY2025. In my previous article , I initiated a hold rating due to the gloomy growth outlook and lofty valuation, which would prevent the stock from sustaining a rally. Since then, the stock was down 9% compared to a 27% rally for the S&P 500 index....

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