Snowflake, a leading player in the cloud-software sector, experienced a significant boost on Thursday as the market responded positively to its latest results, which indicated a rise in demand. Despite this encouraging development, some Wall Street analysts remain cautious about predicting a sustained recovery.
Impressive Growth in Consumption
Snowflake's stock saw an early-morning surge of 7.8%, reaching $188.84, after the company reported stronger consumption of its data-warehouse software in the October quarter. Analysts were particularly impressed by the fact that consumption in September grew at the fastest rate in the last two years, and this upward trend continued into October. Ittai Kidron, an analyst from Oppenheimer, believes that this positions the company for potentially accelerated growth in 2024. In light of these positive results, Kidron raised his target price on Snowflake stock to $240 from $220 while maintaining an Outperform rating.
Positive Impact on Cloud Sector
The optimistic outlook for Snowflake had a ripple effect on the entire cloud sector, with MongoDB experiencing a 4.8% increase and Datadog rising by 2.4%. Datadog also recently reported better-than-expected earnings. Analyst Ben Reitzes from Melius Research expressed confidence in the re-acceleration of cloud revenue overall.
Varied Analyst Opinions
Although many analysts share a positive view of Snowflake's performance, not all are convinced that the trends observed in the latest quarter will necessarily continue into the next year. Guggenheim Securities analyst John DiFucci remains cautious, stating that it is too early to view the current quarter as a bottom for consumption trends. Fieldwork and discussions with partners suggest conservative discretionary spending for at least the next few quarters. DiFucci maintained a Sell rating on Snowflake's stock but raised the target price to $120 from $105.
Expanding Market Opportunity
While acknowledging Snowflake's significant market potential, Third Bridge analyst Jordan Berger highlighted the importance of cloud cost-cutting and the noticeable deceleration in the company's net revenue retention. However, this does not diminish the vast market opportunity that lies ahead for Snowflake.