Snowflake (SNOW) Stock

Snowflake Inc.'s stock surged post-FQ3 earnings but remains overvalued based on limited AI revenue and decelerating growth. The company is only targeting 23% YoY growth in FQ4 despite the investor excitement. The stock's rally is driven by AI hype and multiple expansions, pushing the valuation similar to pre-IPO Databricks with up to double the growth rates.

Artificial intelligence sector names Snowflake (NYSE:SNOW) and Elastic (NYSE:ESTC) were upgraded to a positive rating by Wedbush on Tuesday as it sees opportunities for other software players to "get in on the AI party" as further uses for the technology emerge.  The brokerage reflected confidence in the next phase of the AI revolution, namely the "enterprise consumption phase", with launch of large language models (LLMs) for thousands of companies and further adoption of generative AI that it reckons "will be a major catalyst for the software sector and key players".

After struggling since the spring, Snowflake (SNOW 2.38%) stock has surged much higher following the release of earnings for its fiscal 2025's third quarter (ended Oct. 31). After an abrupt leadership change and questions about how well it could compete amid the rise of artificial intelligence (AI), the company is again winning over customers and investors.

Warren Buffett is the CEO of Berkshire Hathaway (BRK.A 0.30%) (BRK.B 0.18%). Over his 59-year tenure, Berkshire stock has delivered a compound annual return of 19.8%, almost twice the average annual return in the S&P 500 over the same period.

Snowflake's stock struggled earlier in the year due to disappointing FY 2025 guidance and CEO Frank Slootman's retirement. New CEO Sridhar Ramaswamy's AI expertise aims to close the gap with Databricks and achieve Snowflake's ambitious $10 billion revenue goal by FY 2029. Snowflake Cortex enhances data workflows with AI but lacks the advanced functionality of Databricks Mosaic AI, necessitating further investment in AI capabilities.

SNOW shares ride on an expanding portfolio and rich partner base despite a stretched valuation.

Snowflake's (SNOW 2.38%) stock soared 33% on Nov. 21 after the cloud-based data warehouse provider posted its latest earnings report. For the third quarter of fiscal 2025, which ended on Oct. 31, its revenue rose 28% year over year to $942.1 million and exceeded analysts' expectations by $43.6 million.

Snowflake Inc.'s sales growth slowed to 28%, with adjusted operating margin dropping to 6.25%, prompting a focus on cost management and go-to-market strategy to boost growth. Despite AI/ML feature expansions and strategic partnerships, Snowflake's functionality lags competitive CSPs that offer more robust AI & analytics capabilities. Snowflake is facing a migration out of its storage service as customers adopt Iceberg, or the ability to leverage external data sources on Snowflake's platform.

Wedbush Securities analyst Daniel Ives has significantly increased his optimism on the next phase of the AI revolution, focusing on its transformative impact on the software sector.