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Snowflake (NYSE:SNOW) shares rose on Monday after investment firm Wolfe Research started coverage on the data warehousing company and said it sees nearly 50% upside to the stock from current levels.
Analyst Alex Zukin started coverage with an outperform rating and a $250 price target, implying a 48% return, noting that it’s likely Snowflake (SNOW) becomes the fourth hyperscaler, behind Amazon (AMZN) Web Services, Microsoft’s (MSFT) Azure and Google’s (GOOG) (GOOGL) Cloud.
Zukin cited multiple reasons for this potential achievement, including the fact it is growing faster than AWS did at the same size and scale; it has “the best management team in software”; it turned Amazon into a partner from a competitor due to the strength of its software offerings; lastly, it caused multiple venture capitalists to fund companies built natively on its platform.
“This last point was one of the most impactful learnings from our diligence, which we believe creates an important durable structural growth driver and competitive advantage that is not well understood,” Zukin wrote in a note to clients.
Snowflake (SNOW) shares rose more than 6% to $184.45 in early trading on Monday.
In addition, Zukin noted that investors have not fully appreciated that Snowflake (SNOW) may generate free cash flow and can support free cash flow margins of 22% and 24% in 2023 and 2024, respectively, as free cash flow is growing 60% year-over-year.
“Given the high growth, stellar management team, and [free cash flow] support, we believe [Snowflake] warrants a premium multiple,” Zukin added.
Last month, Snowflake (SNOW) shares fell sharply after the company forecast that sales growth was slowing.
