SNOW - Snowflake initiates breakout as momentum turns bullish: time to accumulate?
2024-01-24 07:06:21 ET
Snowflake Inc. (NYSE:SNOW) was at the centre of buyer interest on Wednesday as the stock rose by over 3%. A technical analysis shows the stock had initiated a breakout at $195. With no notable stock market news responsible for the gains on the day, we investigate this stock further.
Snowflake is a beaten-down stock, trading at just $205, less than half its record $427 in December 2020. The stock is also a shell of its November 2021 high of $404. However, Snowflake has been impressive in the last year, gaining 41% in value. YTD, the stock has returned more than 8%. Is the recent performance a precursor of a robust 2024?
Snowflake is making strides in cloud computing, making the stock one of the keenly watched on Wall Street. The company earns revenues from fees charged in key areas of cloud computing, data storage, and data transfer. The technology areas have been fast-growing, but Snowflake had a fair share of success of its own.
The company has witnessed growth in demand for its services. Notably, CEO Frank Slootman said during Q3 2024 results that the markets have stabilised. This helped revenues grow by 34%. The company’s reported $0.25 EPS was higher than consensus estimates of $0.16. Snowflake forecasts higher product revenues in Q4, expected on March 6, with up to 30% growth. An earnings beat in Q4 results is expected to strengthen optimism for the stock.
Going forward, Snowflake’s inroads into Generative AI are positive, although the results might not be quick. Notwithstanding, the company has chosen a cautious path to AI until security and governance issues settle. Simply put, SNOW’s short- and medium-term gains are pegged on the demand for its existing product portfolio. Thus, as long as the company reports growing demand and earnings, the stock’s positive trajectory will remain.
SNOW technical analysis – a potential breakout at $195
From a technical outlook, SNOW has breached a key resistance at $195 and is on its way up. Although the breakout is yet to be confirmed based on the weekly price chart, bullish strength is evident. A breakout clears SNOW from its stubborn resistance, holding the stock back for the past nine months.
An RSI reading of 66 suggests the stock is approaching an overbought zone. A possible correction should be expected after the stock successfully clears the crucial resistance.
Should you buy Snowflake?
The snowflake market has been recovering, and its financial performance has been growing. The stock is attractive in the short and medium term after a successful breakout above $195. If investing in SNOW, look for technical signals after the stock clears the resistance level.
The future outlook depends on how much the company can sustain the demand for its services and AI iterations.
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