Snowflake stock has underperformed some of its peers, but big things are coming for the software company, Wedbush analyst Dan Ives says.
He increased his target for Snowflake’s stock price to $210 from $190, which implies a 21% increase from the closing price of $173.53 on Tuesday. Ives also maintained an Outperform rating on the stock.
Ives wrote in a research note late Tuesday that his new price target reflects stronger demand for Snowflake’s product portfolio, which “continues seeing elevated innovations with updated AI/ML [machine learning] capabilities that meet growing enterprise needs.”
Enterprise software stocks performed well in 2024 as several companies in the space provided strong financial forecasts. Businesses are willing to spend heavily on generative artificial intelligence software that can improve productivity, and shares of ServiceNow and Salesforce are benefiting from that.
ServiceNow stock has jumped 47% over the last 12 months while Salesforce shares are up 20%. Snowflake stock, however, has dropped 14% as investors have worried over the departure of the CEO in March, competition, an expensive valuation, and margins.
But in November, the company issued a forecast of fourth-quarter product revenue that was better than Wall Street expected, while also providing improved margin guidance.
“SNOW is well-positioned to stabilize margins in the near-term as the company invests to capture the massive growth opportunity taking place in the market while its prudent cost approach assists with bottom-line expansion,” Ives wrote.
Still, Snowflake is expensive. The stock is trading at 177.1 times the per-share earnings expected over the next 12 months.
But Ives isn’t the only analyst that thinks that number makes sense. On Jan. 6, analysts at RBC Capital Markets, who rate the stock as Outperform with a target of $188 for the price, wrote in a note that Snowflake’s premium valuation was warranted based on the company’s outstanding growth, its opportunities to expand the markets it serves, the management team, and the outlook for its free-cash-flow margins.
Snowflake stock was up 1.5% Wednesday to $176.12. The S&P 500 was up 0.8%.