Analysts at the Bank of America (BoA) have initiated coverage on Snowflake with a ‘Neutral’ rating and US$195 price target on their view that the company is well-positioned to capture market share in the $132 billion data management industry with its leading cloud platform.
This is based on Snowflake’s status as a first mover in the cloud, interoperability with the major public clouds, and the fact its platform is capable of running multiple workloads, the analysts wrote in a note to clients.
They also pointed out that Snowflake’s “unique” pricing structure provides a key competitive advantage, though it also presents a higher degree of exposure to a still challenging IT spending environment.
“Snowflake's pay-as-you-go/consumption pricing model is facing headwinds that, while improving, are still weighing on growth in the company's core data warehouse business,” the BoA analysts wrote.
As such, the analysts believe that there is limited third quarter upside for the stock as macro exposure is likely to continue to weigh on Snowflake’s growth in the near term.
They believe that new products will be key for Snowflake to reaccelerate its sales.
“We have spoken with nearly a dozen key system integrator partners in recent months, and feedback suggests Snowflake has a growing pipeline build for new workloads outside of the core data warehouse,” the analysts wrote.
“We believe the contribution from these emerging workloads is the key to getting growth moving again. In our base case, we model a six-year revenue compound annual growth rate of 27%. In a reasonable upside case, we model 31%.”
The analysts noted that their US$95 price target represents a 20% upside to the stock, which traded at about US$158 at noon on Friday.
However, they wrote that any near-term upside was largely priced into the shares.
“Snowflake shares trade at a significant premium to its large-cap software peer group (12 times our 2025 calendar year revenue estimate versus peers at eight times),” they wrote. “We see limited near-term catalysts at this valuation.”
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