Financial Report Preview | AI layout is gradually accelerating, is Snowflake's stock price "jumping and squatting" ahead?

According to the latest information from Zhitong Finance, Snowflake (SNOW.US) is set to announce its latest quarterly earnings on Wednesday local time. Analysts expect that the upcoming earnings per share will increase by 13.3% year-on-year, with an estimated revenue of $7.8695 billion, a 26.2% year-on-year growth. Over the past 30 days, the general expectation for earnings per share for this quarter has been raised by 3.6%, indicating a collective reassessment by covering analysts of their initial forecasts.

The collective assessment by analysts indicates that "product revenue" is estimated to be $7.4819 billion, representing a 26.8% year-on-year change. The comprehensive assessment by analysts suggests that "professional services and other revenue" could reach $38.16 million, showing a 13.8% year-on-year growth.

Analysts project that the "total number of customers" will reach 9,766, compared to the reported 8,167 customers in the same period last year. They also estimate that the "customers with product revenue exceeding $1 million in the past 12 months" will reach 492, contrasting with 373 a year ago.

Analysts anticipate that the "non-GAAP gross profit (loss) - product" will reach $5.4894 billion, compared to $4.5408 billion in the same period last year.

Overall, Seeking Alpha analysts rate the stock as "Hold," while Wall Street analysts rate it as "Buy."

Previously, KeyBanc Capital Markets analyst Eric Heath reiterated a "Overweight" rating for Snowflake. The analyst mentioned that given the positive usage trends and comments from industry peers Confluent (CFLT.US) and Datadog (DDOG.US) on first-quarter public cloud acceleration, they are optimistic about this backdrop. Additionally, the analyst added that the company's guidance for the 25th fiscal year seems more conservative, with management assuming usage trends similar to the 24th fiscal year. Heath expects management to maintain a cautious outlook for the 25th fiscal year. However, the analyst added that investor confidence is expected to further improve ahead of the June Snowflake Summit, with several new products expected to be widely launched.

Heath noted that the pace of AI-related announcements has accelerated since Sridhar Ramaswamy was appointed CEO, which is a positive change, with products like Cortex and Snowpark Container Services expected to be widely adopted soon.

However, Bank of America Securities previously slightly lowered Heath's target price from $212 to $200, partly due to seasonal fluctuations in its cloud services. The bank also reiterated a "Neutral" rating on the stock. BofA analysts Brad Sills and Carly Liu stated, "Compared to the past 4 quarters, the net revenue retention rate has declined, and we expect this trend to continue in the first quarter." Therefore, we believe that a 2% to 3% growth in product revenue may be more realistic. From an optimistic perspective, we expect first-quarter product revenue to be $763 million (a year-on-year increase of 29%), with a base revenue of $746 million."

Bank of America found that competitors' data platforms, such as MongoDB (MDB.US) and Datadog, have better capabilities in handling artificial intelligence workloads, which made them outperform Snowflake in March and April. The two analysts added, "However, we believe that over time, Snowflake is likely to narrow the gap in artificial intelligence, under new leadership, Snowflake has a more proactive roadmap and inherent advantages as a leader in the adjacent data warehousing industry."

Snowflake's stock performance is weak, investors are dissatisfied with its AI layout

Snowflake's stock has fallen by about 17% in the US stock market this year, significantly lagging behind the iShares Expanded Tech-Software Sector ETF (IGV.US), which tracks the entire software industry and has risen by about 3.3%. As many companies have been continuously cutting software procurement costs in recent years to achieve cost reduction and profit increase, the company's revenue growth rate has been slowing down in 2023. This internal corporate trend called "cost optimization" has also affected cloud computing leaders such as Amazon (AMZN.US) and Microsoft (MSFT.US). Microsoft and Amazon AWS are also important enterprise customers of Snowflake's cloud data warehouse products. Snowflake adopts a multi-cloud strategy, allowing its products to run on AWS, Azure, and Google Cloud Platform.

Since the revolutionary ChatGPT was introduced, the competitive situation in the field of generative artificial intelligence has been escalating recently. Some US tech giants have chosen to cooperate with or directly acquire AI startups to further enhance their technological layout in the field of artificial intelligence and accelerate the launch of AI application products. For example, Microsoft, relying on its major shareholder status in OpenAI, has embedded OpenAI's proud GPT-4 AI large model into its flagship applications such as the Office series and Microsoft Azure cloud platform, becoming the absolute leader in AI applications globally, with performance and stock prices continuously increasing since 2023. Recently, Microsoft has also hired most of the employees of the AI startup company Inflection AI Leader in the smartphone chip field Qualcomm Inc. is collaborating with semiconductor startup Ampere to develop chips for the artificial intelligence field, seeking to enter the highly profitable AI hardware infrastructure field dominated by AI chip giant NVIDIA. Cloud software giant Salesforce Inc. has already invested in multiple AI startups, striving to continuously integrate generative AI technology into client-side software applications.

Startup Databricks, often seen as a major competitor to Snowflake, has also released its own open-source large-scale language model and acquired AI startup MosaicML for $1.3 billion last year. The unlisted Databricks is valued at around $43 billion, while Snowflake's current market value is around $55 billion.

However, Snowflake's lackluster stock performance this year also indicates that the company's progress in generative AI is not meeting market expectations, lagging far behind industry leaders like Amazon AWS and Microsoft. Therefore, Snowflake's recent acquisition of AI startup Reka AI may be aimed at significantly expanding the software provider's layout in generative AI capabilities and applications.

Many enterprises have used Snowflake's cloud data warehouse platform to store and manage internal or customer data. By introducing generative AI capabilities, Snowflake is expected to further enhance the functionality of its cloud data warehouse platform, enabling enterprise customers to manage enterprise data more efficiently and conveniently, as well as helping enterprises effectively utilize data for AI large-scale model training and inference deployment