Snowflake (NYSE:SNOW) was cut to Hold from Buy at HSBC on Thursday, with the firm's analysts lifting the price target for the stock to $214 from $212 per share.
The downgrade follows a strong rally for the stock, which is up 18.6% for the year to date. The firm believes all the good news is priced into the stock.
HSBC expects consumption trends for SNOW to improve further as customers transition to greater adoption of artificial intelligence.
"Margins may remain under pressure in the near term due to new product
launches, but we expect significant margin improvement over time," said HSBC. "We believe our FY28e non-GAAP operating margin assumption of 21.2% is conservative as by FY28e, we expect Snowflake to reach an annual revenue of more than USD8 billion while other software companies under our coverage with high single-digit billion revenue have a typical CY24e non-GAAP operating margin of 27%-36%."
Despite the positives, the firm said the "valuation is full," and they believe it "no longer offers an attractive risk-reward trade-off."