snowflake (NYSE: SNOW) The stock has been on a tear following recent quarterly results, which coincided with a surprise CEO change and disappointing guidance. Since its 52-week high of $237.72 per share, SNOW stock has lost about 33% of its value. With numerous AI innovations recently unveiled (and more likely to come), shares of the highly underrated artificial intelligence (AI) stock now appear to be way oversold.
There’s no doubt that the latest Snowflake quarter was a lot for investors to digest, perhaps too much to give them a bad bout of indigestion. The weaker guidance warranted some penalty, especially considering how high the valuation score had become at the start of the quarter. Still, I think many investors discount new CEO Sridhar Ramaswamy’s abilities.
In my previous article about Snowflake’s post-earnings record, I urged investors to give Snowflake’s new CEO the benefit of the doubt, given the expertise he brings to the table, particularly in AI, during his time at Alphabet (NASDAQ:GOOGL) Google and Neeva.
Given the opportunity, I would say that Snowflake’s new leader, a scientist and visionary who is probably more knowledgeable about AI than most other senior leaders, could prove a worthy successor as Snowflake recalibrates its skis for the age of generative AI positioned. Given the unveiling of new AI products and recently lowered expectations, I have no hesitation in remaining bullish on SNOW stock as it trades for less than $160 per share.
Snowflake’s Arctic AI model could be a huge deal for the company
With the recent launch of Snowflake’s new open source Enterprise Large Language (LLM) model Arctic, which boasts an impressive 480 billion parameters, Snowflake has officially joined the LLM bandwagon. It will also be interesting to see how the technology “optimized for complex enterprise workloads” translates into growth over the next few years.
Of course, it will take some time for Snowflake’s latest AI innovations to push the stock higher again. However, after the recent sell-off in SNOW stock, expectations appear to be modest enough that a surprise rise is on the way in the near term. Furthermore, I find that the news from the Arctic has been rather muted, particularly given the potential advantages it could have over other business-focused LLMs in the market.
In fact, AI model launches and announcements don’t seem to be as exciting in 2024 as they were in 2023. Some might consider LLMs to be commoditized, with new chatbots appearing to be released on a regular basis. From OpenAI to Anthropic to the Magnificent Seven companies, every company seems to have a share of the AI pie right now.
As the number of open source and proprietary AI models increases over time, it is quite possible that we will see a serious increase in competition. Still, I don’t think LLMs will become commodified, especially when there are so many ways one model can differ from others. Ultimately, it probably won’t matter how many offers there will be; The herd will turn to the best model for their needs, and this is about more than just performance or the number of parameters.
More efficient and tailored AI models can outperform raw performance. And in that regard, I believe Snowflake has the potential to make a splash in AI. Snowflake’s Arctic training is reportedly more cost-effective than its competitors, requiring one-eighth the cost of comparable competitors. That’s some serious efficiency that many investors may be sleeping on.
These early stages are more about AI monetization
With ChatGPT taking the world by storm less than two years ago, many of us are probably exhausted by the specifications of the latest LLMs (parameters, benchmarks, etc.). We want to know how these innovations can make money and drive growth. Until it is clear how money will be made from these new models (some financial estimates would be helpful), it may be harder to raise the bar based solely on bringing AI models to market.
Regardless, it could be a mistake to discount the growth potential of new LLMs like Arctic given the lead it has over the competition.
I expect that in the next phases of the AI boom, efficiency and personalization will be the biggest differentiating factors between AI contenders. At this point, Snowflake appears to have left both metrics in the lurch as the company aims to empower enterprise customers to harness the power of their data.
It’s not just the Arctic LLM that could help put Snowflake on the rise for AI. The company has no shortage of AI features that make life easier for users. From its Cortex service (to manage and improve software development processes) to Document AI (to transform unstructured document data into structured data), it’s clear that Snowflake can build a moat around its ecosystem by going all-in on AI.
Is SNOW Stock a Buy According to Analysts?
On TipRanks, SNOW stock is rated a Moderate Buy. Of the 37 analyst ratings, there are 24 buy recommendations, 11 hold recommendations and two sell recommendations. The average price target for SNOW stock is $211.26, implying an upside potential of 32.6%. Analyst price targets range from a low of $125.00 per share to a high of $260.00 per share.
The bottom line of SNOW stock
In fact, there is a lot of uncertainty about how much bacon a new AI can yield over many years. And for a company like Snowflake that uses a volatile, usage-based revenue recognition model, I’d say it’s far better to be cautious about estimates, especially given the great economic uncertainty.
With a strong and growing AI presence (Arctic and other AI innovations) and an “AI guy” now in charge, I think Snowflake’s best days (at least for a publicly traded company) are still ahead of us .
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