Eric J. Savitz
Snowflake (NYSE:SNOW) stock has soared nearly 70% since late October, including a 16% gain since the start of 2024, reaching its highest level in nearly two years. At least one analyst thinks it’s time to take some profits.
Stephen Bersey, head of U.S. technology research at HSBC Global Research, on Thursday cut his rating on Snowflake stock to Hold from Buy, while inching up his target price to $214 from $212 to reflect higher earnings estimates. But that’s still below the stock’s current level — Snowflake shares are off 2.7% on Thursday at $229.60.
Snowflake, which provides cloud-based data-warehousing software, is widely perceived as a beneficiary of the enterprise artificial-intelligence trend. Bersey points out in a research note that the company has “strong fundamentals,” with expected adjusted earnings per share to rise at a compounded annual rate of 47% through 2028, driven by a combination of 30% revenue growth and an expected 14 percentage-point improvement on non-GAAP operating margins.
“We expect consumption trends to improve further as customers transition to greater adoption of artificial intelligence,” he writes. “Margins may remain under pressure in the near term due to new product launches, but we expect significant margin improvement over time.”
That said, Bersey’s view is that Snowflake’s valuation is “full,” with the stock trading at a gaudy 187 times his calendar 2024 earnings-per-share estimate, or about six times the multiple on the average enterprise-software company.
He notes that Snowflake will continue to post losses under generally accepted accounting principles through fiscal 2026, then turn positive in fiscal 2027.
Writes Bersey: “The stock no longer offers an attractive risk-reward trade off.”
Write to Eric J. Savitz at eric.savitz@barrons.com