By Emily Bary
Bernstein worries that ‘expectations may creep too high for next quarter’ and says the AI messaging looks murky
Trends are improving at Snowflake Inc., but perhaps not enough to settle the investor debate over the controversial software stock.
One highlight of Snowflake’s (SNOW) latest earnings report was that the company upped its full-year forecast for product revenue, having disappointed big time with its initial guidance three months back.
But some analysts aren’t yet convinced that Snowflake shares are primed for a major rally. The new outlook and growth in remaining performance obligations “might overly inflate investor expectations,” according to Bernstein’s Mark Moerdler, who added that Snowflake’s artificial-intelligence strategy seemed murky.
He and his team “worry that confidence in growth durability and management’s credibility in estimating the revenue/growth opportunity are tenuous, and expectations may creep too high for next quarter,” he wrote. “More importantly, the company’s long-term strategy remains unclear at best and unattainable at worst.”
He’s hoping for more clarity when Snowflake holds an investor day on June 4. For now, it’s “a show-me story” in the eyes of Moerdler, who kept a market-perform rating on the stock but upped his price target to $185 from $171.
Despite opening higher, Snowflake’s stock is down 4% in afternoon action. UBS analyst Karl Keirstead also relayed some caution.
The high end of Snowflake’s outlook implies $20 million of sequential growth for the July quarter, which Keirstead said is seasonally low. That’s “raising the prospect that the more muted April usage growth extended into May,” he said.
“It’s possible that Snowflake saw several large customer migrations in [February and March] that resulted in a short-term spike in usage that then normalizes,” Keirstead added, while maintaining a neutral rating on the stock but boosting his target price to $190 from $185.
Evercore ISI analyst Kirk Materne said he understood investor concerns about the company’s costs and potential spending optimizations, “but the key takeaway for us is that the core business remains healthy and it’s the very early innings in terms of the potential benefit from newer services like Cortex and Snowpark on consumption.”
Materne rates the stock at outperform with a $225 target price.
Derrick Wood of TD Cowen stayed bullish as well. “We are encouraged by early traction from AI products and continue to think there is substantial new workload unlock ahead,” he wrote.
Wood has a buy rating and $230 target price on the shares.