Aside from the semiconductor producers, another benefactor of the artificial intelligence (AI) driven rally has been the cloud server sector, in which Snowflake (NYSE: SNOW) has been an up-and-coming candidate.
A beat on earnings per share of $0.18 compared to $0.16 and revenue of $869 million compared to the expected $852 million in Snowflake’s Q2 earnings report on August 21 has prompted the leadership to raise its guidance for the upcoming quarter and the full financial year of 2025.
However, Snowflake’s CEO stepped down earlier this year, causing SNOW stock to fall by 20% in a single trading session on February 29. Shares have been unable to recover since, with a 28.59% decrease on a year-to-date basis, as Wall Street analysts see the effect of a sudden CEO transition carried over six months after.
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Some Wall Street analysts are skeptical about SNOW stock
Despite providing a double beat on Q2 earnings, the report showed that the cloud server firm faces decreasing earnings from share compared to the previous year (18% less) and diminishing operating margin, down by 5.18% year-over-year.
On August 22, Guggenheim’s analyst John DiFucci reaffirmed its “neutral” rating on the stock, citing the slowdown in the broader IT industry, which has affected Snowflake’s financials.
DiFucci added, “It seems to us that it’s probably more the latter, as this ‘New Normal’ likely hasn’t changed much, with results from companies that ebb and flow in a challenging IT spending environment.”
BTIG analysts also maintained their “neutral” rating on SNOW stock on the same date, citing increasing competitive pressure as one of the main reasons for the company’s shrinking profit margins.
Ratings before the Q2 earnings release were moderately bearish on Snowflake’s outlook, as evidenced by Loop Capital’s decrease in its price target from $225 to $185 and unchanged “buy” rating.
Similarly, on August 20, Baird analysts adjusted their price target for SNOW shares from $200 to $165 while maintaining an “outperform” rating.
Other experts see an opportunity for Snowflake
Snowflake has seemingly split Wall Street’s opinions. Analysts are pretty divided on SNOW shares, with some seeing an increasingly competitive sector with diminishing returns and others seeing opportunity.
One of the bullish firms on Snowflake is Evercore ISI, which, on August 22, reiterated an “outperform” rating with a $170 price target for the stock, highlighting Q3 and FY25 raised guidance as the main reasons for optimism.
Goldman Sachs experts labeled SNOW shares a conviction buy on August 22 and issued a $220 price target for the stock. A double beat on earnings was the key factor in the positive outlook on its shares.
In a somewhat mixed review, Jefferies analysts lowered SNOW shares price target to $145 from $160 while maintaining a “buy” rating, as the CEO transition is marked as “pivotal” and that the transition results will soon be evident.
Similarly, Citi analysts cut their price targets to $200 from $236 while leaving the “buy” rating unchanged.
Now, the two camps on Wall Street have clearly formed. Both focus on different aspects of Snowflake’s business while using different rhetoric on the same events (CEO transition). It remains to be seen which of these two will prove correct.
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