Why Is Snowflake Stock Trading Higher Friday?

Snowflake Inc SNOW shares are trading higher after RBC Capital analyst Matthew Hedberg initiated coverage on the stock with an Outperform rating and a $230 price target.

Hedberg is bullish on their long-term growth opportunity and thinks the upside to consensus estimates seems likely. 

Key catalysts include improving cloud optimization trends, rapid adoption of Snowpark, and, over time, adoption of new GenAI offerings. 

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Despite 2023 cloud optimization trends, Hedberg noted that platforms supporting a multi-cloud, cross-cloud strategy will win. He liked seeing stabilizing cloud optimization trends in CQ323 across his coverage as he noted CY24 likely shows stability and ultimate improvement in cloud spending, partially benefiting from easier comparisons. This bodes well for Snowflake, especially given all the recent product initiatives to support GenAI workloads.

Historically, Snowflake was a cloud Data Warehousing platform but has recently evolved into a Data Cloud platform, which supports use cases across data warehousing, data lakes, and beyond.

Hedberg noted that their move into the data lake market through Snowpark should enable cross-selling into ML and GenAI use cases. To that point, Snowpark's consumption growth of 47% Q/Q in Q324, with over 30% of customers using Snowflake to process unstructured data in October, was a nice positive.

Hedberg noted that a comprehensive data strategy is a precursor to a GenAI strategy. As such, he stressed that Snowflake is well positioned given the large amount of customer data on their platform and new GenAI offerings that should help drive incremental workload utilization. The analyst expects a more material impact on results will likely come in CY25 and beyond as the new products go into GA.

GenAI remains a key tailwind to support its FY29 target of $10 billion in product revenue with 25% operating margins and 30% adjusted free cash flow margins.

The analyst views management as best-in-class and thinks the upside to their FY29 $10 billion revenue and 30% FCF margin targets remain likely.

The analyst projected Q4 revenue and EPS of $759 million (consensus $757.9 million) and $0.16 (consensus $0.17).

Also Read: Snowflake Gains Analyst Confidence, Poised For Strong Performance In AI And Cloud

Price Action: SNOW shares traded higher by 3.67% at $190.46 on the last check Friday.

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