Snowflake, a cloud-based data platform specialist, experienced a rollercoaster ride in May due to Wall Street‘s reaction to its fiscal 2024 first-quarter results. While the stock plummeted on concerns about a slowdown in the growth rate, it has made a robust comeback, with analysts expecting an upside. The street-high price target of $500 for Snowflake, which is currently trading at around $178, could mean gains of up to 180% from the stock’s current value. Investors may doubt if Snowflake can soar to such heights, but a closer look at how artificial intelligence (AI) could supercharge this cloud stock’s growth tells a different story.
During the May conference call, Snowflake management shared that AI could positively impact its business. CEO Frank Slootman explained that generative AI models, based on popular applications like ChatGPT, are trained using enormous volumes of data taken from the internet. Since Snowflake enables customers to consolidate vast amounts of data into a single cloud-enabled platform for analysis and application building, generative AI could present a substantial growth opportunity for the company. Customised generative AI models could be built using proprietary data sets, and Snowflake could manage bigger sets of public and proprietary data as they grow.
Notably, Snowflake’s cloud data platform is already experiencing AI-related demand. Slootman shared that data science, machine learning, and AI use cases on Snowflake are growing every day. In Q1, more than 1,500 customers leverage Snowflake for one of these workloads, up 91% year over year. Additionally, Snowflake’s data platform powers the Streamlit platform, which has been used to create 1,500 large language model-powered applications, including Open AI‘s GPT Lab that allows users to create custom AI assistants or grants access to pre-trained AI assistants.
With AI growth predictions propelling tenfold growth of the generative AI market over the next decade and generating annual revenue of $118 billion in 2032, Snowflake plans to capitalise on its opportunities to ensure exponential growth. Already sitting on a massive total addressable market (TAM) set to grow to $248 billion in 2026, Snowflake is well-positioned to develop exponentially. Despite a slowdown in customer spending, the company is expected to increase its top line by 33% year over year in the current quarter; the lower end of its guidance range to $620 million suggests considerable growth, coupled with a 34% increase to $2.6 billion in product revenue expected at the end of the fiscal year.
In the long run, catalysts such as AI could ensure that Snowflake delivers on its forecasts, potentially hitting $5 billion in revenue in 2026 while anticipating reaching $10 billion in product revenue by the end of fiscal 2029. If Snowflake can achieve this feat, it could significantly discount 15 times its sales (compared with the current price-to-sales ratio of 25), resulting in significant market cap growth into the region of $150 billion by 2027. This would represent a considerable market cap increase of 160%, an outcome that is close to the tremendous upside Wall Street currently expects from Snowflake.
