Snowflake Stock Forecast: Will It Rise in the Long Term?

Snowflake Inc. (SNOW), a cloud-based data warehousing company, has garnered significant attention since its initial public offering (IPO) in September 2020 and its recent Q1 earnings call, which saw a notable stock surge. As businesses increasingly shift towards cloud solutions, Snowflake's innovative approach to data management has solidified its position as a key industry player. This article delves into the long-term forecast for Snowflake stock, analyzing market trends, financial performance, and growth potential to answer the pressing question: Will Snowflake stock rise in the long term?

Snowflake Inc., Q1 Fiscal Year 2025 Summary

In Q1 FY2025, Snowflake Inc. demonstrated robust performance, driven by product innovation and strategic customer engagement. Following the earnings call, the company's stock surged by 7.2% in after-hours trading. Let's delve into the earnings details.

Financial and Performance Report

Product Revenue: Snowflake reported Q1 product revenue of $790 million, marking a 34% year-over-year increase. This growth was bolstered by contributions from a media entertainment Global 2000 company and a large retail and consumer goods company, along with significant performance from smaller accounts outside the Global 2000.

Remaining Performance Obligations (RPO): Total RPO reached $5 billion, reflecting a 46% year-over-year growth rate.

Non-GAAP Metrics: The non-GAAP adjusted free cash flow margin stood at 44%, while the non-GAAP product gross margin was 76.9%, slightly down due to GPU-related costs for AI initiatives. The non-GAAP operating margin was 4%, benefiting from revenue outperformance.

Cash Position: Snowflake ended the quarter with $4.5 billion in cash, cash equivalents, short-term, and long-term investments. The company also used $516 million to repurchase 3 million shares at an average price of $173.14 per share, with $892 million remaining under the original $2 billion repurchase plan.

Operational Highlights

Customer Engagement: Sridhar Ramaswamy highlighted strong customer relationships, having engaged in over 100 conversations in recent months. Examples include a major US telco using Snowflake to close their books monthly and a global financial service customer managing counterparty credit risk processes.

AI Integration: AI is seen as a significant growth driver across all layers of Snowflake's platform. The Cortex AI layer, now generally available, has been adopted by over 750 customers since its launch.

New Products & Features: Snowflake announced general availability timelines for Iceberg, Snowpark Container Services, and Hybrid Tables later this year.

Product and Service Updates: The Cortex AI was launched earlier this month, with over 750 customers using its capabilities. The Arctic Language Model (LLM) was developed in less than three months at one-eighth the training cost compared to peer models like LLaMA-2-70B and Mixtral 8x7B. Document AI helps customers extract features from documents on-the-fly as part of a broader unstructured data strategy. Snowpark Container Services are expected to be generally available in the second half of the year, with dozens of partners already building solutions leveraging these services.

Collaboration Capabilities: Nearly one-third of customers are sharing data products as of Q1 FY2025, up from 24% one year ago.

Future Outlook and Guidance

Q2 FY2025 Guidance: Snowflake expects product revenue between $805 million and $810 million.

Full-Year FY2025 Guidance: The company has increased its full-year product revenue guidance to approximately $3.3 billion, representing a growth rate of about 24% year-over-year.

Margins Outlook: Due to increased GPU-related costs associated with AI initiatives, Snowflake has lowered its full-year margin guidance: non-GAAP product gross margin is expected around 75%, non-GAAP operating margin around 3%, and non-GAAP adjusted free cash flow margin around 26%.

Technical Analysis of Snowflake Stock

Price Movement: The stock of Snowflake Inc. (SNOW) experienced a significant peak in early March, reaching approximately $164.84. Following this peak, the stock saw a sharp decline, dropping to a low near $162.13 in April. As of the latest data point in May, the stock has shown a slight recovery, rising to $163.34, which represents a modest increase of $0.63, or 0.39%, from the previous day.

Trading Volume: The trading volume peaked significantly in March with around 9.87M shares traded, coinciding with the price peak. This suggests high selling pressure. Post this peak, the volume has generally decreased, indicating reduced trading activity.

The high volume during the price drop in March indicates a strong selling pressure leading to the price decline. The decreasing volume alongside stabilizing prices in April and May suggests a consolidation phase with less aggressive selling.

Moving Averages (MA): Without specific MA lines visible on the chart, the general observation suggests the price might be hovering around a key moving average line, possibly indicating a tentative support level.

MACD (Moving Average Convergence Divergence): Not visible on the chart, but typically, the observed price stabilization could suggest the MACD line is nearing or below the signal line, indicating a potential upcoming bullish crossover if the trend reverses.

Support Level: The $162 level appears to act as a strong support, as the price has bounced back from this level in April.

Resistance Level: The previous high near $165 serves as a short-term resistance level, which the stock has struggled to surpass in recent trading sessions.

Will Snowflake Stock Rise in the Long Term?

Analyzing the current trend, we can conclude that the stock is in a consolidation phase after a significant drop, indicating uncertainty in market sentiment. If the stock maintains support at $162 and breaks past the $165 resistance, it could signal a reversal and a potential uptrend. However, failure to break the resistance might lead to a retest of lower support levels. Besides, the retirement of CEO, Frank Slootman has created some uncertainty among investors.

A Citigroup analyst maintained a buy rating on Snowflake shares, with a price target of $240, which is 35% above the recent closing price. Analysts at Bank of America and UBS have also raised their price targets, indicating potential upside.

While Snowflake faces some near-term headwinds and valuation concerns, its strong customer base, impressive revenue growth, and positive analyst sentiment suggest that it has the potential for long-term growth. Investors who can hold the stock for an extended period may be rewarded as the company continues to capitalize on the growing demand for cloud-based data solutions.