A significant number of companies are turning to cloud computing services as part of digital transformation projects. These projects look to gain business insights from enormous data volumes. For this, the cloud computing pioneers offer their own management tools.
Big names like Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOGL), and Microsoft (MSFT) are allowing customers to use Snowflake (SNOW) software. The reason being Snowflake’s outstanding performance in key tasks. It lets companies view, compile, analyze, and conveniently share huge data amounts.
Almost two-fifths of Fortune 500 companies use SNOW’s software in the cloud. However, the company has also attracted a fair share of haters. Many of these bears claim that SNOW stock is overvalued.
Despite this overall sentiment, Snowflake appears to be holding up well. Here's why I remain bullish on the prospects of this cloud computing play. (See Analysts’ Top Stocks on TipRanks)
What Makes Snowflake Unique?
Since the rise of the work-from-home reality, cloud management systems have been on the rise. With more data comes increasing need for additional cloud support.
However, it is also important to note that the industry is crowded by some pioneers like Oracle (NYSE:ORCL) and Amazon’s AWS.
Considering these giants lead the cloud market, how does a newcomer like SNOW have an opportunity?
Well, Snowflake, a relatively new player in the industry, is not just an average tech startup. The company reinvented the database for the cloud. This helps other tech companies reach and expand their capacities for existing products. Indeed, as of July, the company boasts more than 3,100 clients. It's not a small-time player any more.
Much of Snowflake's recent growth can be attributed to the company's CEO. He established the company with the purpose of helping companies store and manage their data. Accordingly, through strong strategic management, this company has been able to become a real threat for incumbents in this space.
Investors like Snowflake's growth primarily because of its subscription-based model. Having reliable cash flows (along with strong recurring revenues) makes for a compelling investment thesis.
Snowflake’s Possible Threats
Snowflake isn't without risk. Being a growing player in the global cloud ecosystem via its massive IPO in 2020, Snowflake is batting some of the biggest companies in the world for market share.
Additionally, advertising remains one of the major growth driving factors in Snowflake. The company recently announced its support for a digital advertising standard, known as Unified ID 2.0. This particular move is a result of the change in implementation of Internet cookies by Google.
Another important factor determining the performance of SNOW stock is how Amazon decides to compete in the cloud space. A company with deep pockets, it's expected Amazon could put up a fight in terms of pricing and product improvements to match what Snowflake is doing.
Databricks, which is a privately owned company using AI, is also looking to launch its IPO. In other words, Snowflake is far from the only game in town for investors.
However, bulls often regard Snowflake's seasoned management team and strong corporate systems as strengths. Indeed, there's reason to like the strategic direction Snowflake is headed. How difficult or easy it will be for Snowflake to grow is the key question many investors are asking.
Wall Street's Take
As per TipRanks’ analyst rating consensus, SNOW is a Moderate Buy. Out of 19 analyst ratings, there are 10 Buy recommendations, and nine Hold recommendations.
The average Snowflake price target is $320. Analyst price targets range from a high of $375 per share, to a low of $275 per share.
Bottom Line
Among the growing cloud computing players out there, Snowflake remains one of the top picks for aggressive investors. This company's valuation is in the nose-bleeds, and there's an argument to be made that long-term growth may not live up to the company's current levels.
However, for now, this company's growth rate appears to remain extremely enticing for investors.
Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.
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