Snowflake’s Stock: Overvalued Yet Promising Amidst Competition

Snowflake (SNOW) has recently drawn attention for being potentially overvalued, shown by its Value Score of F.

Currently, SNOW is trading at a 12-month price/sales (P/S) ratio of 13.13X, which is significantly above its median of 12.39X and the Zacks Internet – Software industry’s average of 3.11X.

With these figures, many are questioning whether investing in SNOW is still a smart move. Let’s take a closer look.

Current Valuation: Price/Sales Ratio

 

Image Source: Zacks Investment Research

 

Over the past year, SNOW shares have decreased by 16.9%. This performance is less favorable compared to the Zacks Computer and Technology sector, which rose by 27.4%, and the industry’s average increase of 32.3%.

Snowflake faces intense competition from companies like Databricks. Additionally, rising pricing pressures and growing GPU-related expenses complicate matters, especially as Snowflake invests heavily in AI technologies.

Performance Overview: A Year in Review

 

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Despite these challenges, Snowflake’s future looks promising thanks to a solid product lineup and a growing network of partners.

Currently, the stock is trading above both its 50-day and 200-day moving averages, signaling a bullish market trend.

Trend Analysis: Moving Averages

 

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Expanding Partnerships Support Growth

Snowflake is bolstered by a diverse partner network that includes major firms such as Amazon (AMZN), ServiceNow (NOW), Microsoft (MSFT), NVIDIA, Fiserv, EY, Deloitte, LT Mindtree, Next Pathway, and S&P Global.

The collaboration with ServiceNow is enhancing data interoperability, assisting customers in swiftly moving data in and out of Snowflake platforms.

Moreover, a partnership with Microsoft for a Snowflake Power Platform connector facilitates efficient data flow between Microsoft’s services and Snowflake’s AI Data Cloud, making data management more user-friendly.

The integration of advanced AI models through a partnership with Anthropic is also noteworthy. This collaboration aims to bolster Snowflake’s offerings against fierce competition and pricing pressures.

Innovations like Iceberg and Hybrid tables, Polaris, and machine learning functions are already being employed by industry leaders such as Disney, Hyatt Hotels, and Toyota, showcasing the versatility of Snowflake’s platform.

Additionally, the impending acquisition of Datavolo will enhance Snowflake’s platform capabilities, particularly in handling structured and unstructured data.

Positive Financial Outlook for Q4 & FY25

Looking ahead to the fourth quarter of fiscal 2025, Snowflake forecasts product revenues between $906 million and $911 million, marking a projected year-over-year growth of 23%.

The Zacks Consensus Estimate for revenues in this quarter stands at $952.67 million, reflecting a year-over-year growth of about 22.97%.

For earnings, the consensus estimate is at 17 cents per share, indicating a significant decrease of 51.43% year-over-year.

In total, for fiscal 2025, Snowflake anticipates product revenues to rise 29% to approximately $3.43 billion. Forecasts suggest a non-GAAP product gross margin of 76% and a non-GAAP operating margin of 5%.

Current consensus estimates project revenues for fiscal 2025 at $3.59 billion, suggesting an annual increase of 28%.

Also noteworthy is the earnings projection of 69 cents per share, which indicates a decrease of 29.59% compared to last year.

In recent reports, Snowflake has surpassed earnings estimates three out of the past four quarters, posting an average surprise of 35.39%.

Snowflake Inc. Price and Consensus

 

Snowflake Inc. price-consensus-chart | Snowflake Inc. Quote

 

Discover the latest EPS estimates and surprises with Zacks Earnings Calendar.

Should Investors Buy SNOW Stock?

While Snowflake enjoys a robust partner ecosystem, a growing customer base, and an innovative product lineup, it continues to grapple with competitive challenges and rising costs.

Given its moderate growth prospects, indicated by a Growth Score of C, the stock’s valuation appears to be quite stretched. Therefore, potential investors might consider it a risky proposition.

Currently, SNOW holds a Zacks Rank #3 (Hold), suggesting that it may be best for investors to wait for a more favorable entry point before making a purchase.

Zacks Research Team Highlights Top Stock to Watch

In a recent analysis, our experts identified five stocks with high potential for significant gains. Among them, Director of Research Sheraz Mian pointed out one stock that has the strongest upward trajectory.

This standout stock operates in the financial sector, boasting a fast-growing customer base (over 50 million) and a wide range of innovative solutions. Experts highlight its potential for remarkable growth, reminiscent of Zacks’ previous high-performing stocks like Nano-X Imaging, which soared by +129.6% in just over nine months.

To see the full list of these promising stocks, click here.

Amazon.com, Inc. (AMZN): Free Stock Analysis Report

Microsoft Corporation (MSFT): Free Stock Analysis Report

ServiceNow, Inc. (NOW): Free Stock Analysis Report

Snowflake Inc. (SNOW): Free Stock Analysis Report

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The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.