DDOG - Snowflake jumps as Stifel sees signs cloud headwinds may be 'stabilizing'

2023-05-08 08:14:50 ET

Snowflake ( NYSE: SNOW ) shares rose more than 3.5% in pre-market trading on Monday as investment firm Stifel upgraded the data warehousing company on hopes that recent commentary from other cloud computing companies may signal an end to the slowdown.

Analyst Brad Reback raised his rating on Snowflake ( SNOW ) shares to buy from hold, pointing out that commentary from Microsoft ( MSFT ), Datadog ( DDOG ), JFrog ( FROG ) and Confluent ( CFLT ) may indicate the optimization headwinds are starting to slow and with easier comparisons in the back half of the year, revenue growth may stabilize around the high 30% range.

In addition, the company's discipline should help boost margins and free cash flow "meaningfully higher."

Snowflake ( SNOW ) is likely to be a "net beneficiary" from the growth of the generative AI market, as its cloud platform has the data used to train large language models, Reback suggested.

"We believe this represents a very attractive opportunity for Snowflake, as Snowflake is able to avoid paying compute costs associated with developing the models, but can use data already in the Snowflake data cloud in order to monetize customers training their models," Reback wrote in an investor note.

Additionally, Reback pointed out that Snowflake's ( SNOW ) existing customers bought shorter duration contracts during the fourth-quarter and while the trend is likely to continue, it does not impact consumption behavior and thus, no impact to revenue.

Analysts are largely cautious on Snowflake ( SNOW ). It has a HOLD rating from Seeking Alpha authors , while Wall Street analysts rate it a BUY . Conversely, Seeking Alpha's quant system, which consistently beats the market, rates SNOW a HOLD .

More on Snowflake and cloud computing

• Microsoft surges, analysts hail 'cloud results heard around the world'
• Snowflake, Datadog, MongoDB could see 'fresh headline risks' from hyperscalers
• Snowflake stock rises as it unveils manufacturing data cloud

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