On Monday, Piper Sandler showed confidence in Snowflake Inc . (NYSE: NYSE:SNOW) shares, as the firm increased the price target on the cloud-based data-warehousing company's stock to $208 from the previous $185, while maintaining an Overweight rating.
The adjustment is based on the positive outlook for the company's growth potential, particularly in the realms of artificial intelligence (AI), data engineering, and machine learning (ML). This optimism is reflected in broader analyst sentiment, with InvestingPro data showing 33 analysts revising their earnings estimates upward for the upcoming period. The company's stock currently trades at $162.22, with a market capitalization of $53.55 billion.
Brent Bracelin, an analyst at Piper Sandler, highlighted the strategic position of Snowflake, Microsoft Corp . (NASDAQ: NASDAQ:MSFT), and Salesforce.com Inc. (NYSE: NYSE:CRM) as top picks to benefit from AI trends by 2025. According to Bracelin, these companies are well-positioned to take advantage of increasing enterprise investments.
The analyst cited CIO survey data that supports the case for growing enterprise investments in core workloads, which represent approximately 95% of Snowflake's Annual Recurring Revenue (ARR), and in emerging data engineering and AI/ML workloads, which account for about 5% of ARR.
Bracelin also noted the robust fundamentals of Snowflake, describing the company as a high-quality database franchise on the verge of reaching a $4 billion run-rate, complemented by a business model that projects a Free Cash Flow (FCF) margin exceeding 25%. The recent appointment of a new CEO and a product-first approach are expected to start yielding results in 2025.
According to InvestingPro data, the company demonstrates strong operational efficiency with a 67.33% gross profit margin and maintains healthy liquidity with a current ratio of 1.88. The company has achieved impressive revenue growth of 30.28% over the last twelve months. Discover more insights about Snowflake's financial health and growth prospects in the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
The raised price target to $208 is also justified by higher Calendar Year 2029 estimates and an increased Calendar Year 2029E Enterprise Value to Free Cash Flow (EV/FCF) multiple, which has been revised to 32 times from the previous 30 times.
This revision reflects growing confidence in a potential recovery in the second half of the year, buoyed by favorable Chief Information Officer (CIO) spending intentions and the potential of new products. The new price target is based on a 32 times multiple of the estimated EV/FCF for Calendar Year 2029, which has been discounted back three years at a rate of 14%.
Snowflake's focus on expanding its capabilities in the AI and ML sectors, along with its strong financial model and leadership changes, have contributed to Piper Sandler's optimistic view of the company's future performance and valuation. Based on InvestingPro's Fair Value analysis, the stock appears to be fairly valued at current levels, with analysts predicting profitability this year.
In other recent news, Databricks has secured a significant $10 billion in Series J funding, raising the company's valuation to $62 billion. This funding will enable investment in new artificial intelligence products, strategic acquisitions, and expansion of international go-to-market strategies. The company also expects to surpass $3 billion in annual recurring revenue and achieve positive free cash flow in the fourth quarter.
Simultaneously, Snowflake continues to garner attention from analysts. Jefferies and Baird have raised their price targets for the company, reflecting confidence in Snowflake's growth trajectory, particularly in AI product development.
In the cloud database management system sector, Gartner (NYSE:IT)'s 2024 Magic Quadrant positioned Databricks higher than Snowflake, indicating a stronger position on both Completeness of Vision and Ability (OTC:ABILF) to Execute.
These are recent developments in the data and analytics sector, reflecting the dynamic growth and competitive landscape of these companies.
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