Snowflake Stock Gets a Run of Upgrades; is the Low Finally in?

Key Points

• Shares of the tech giant have been under pressure since last month’s earnings report.
• But having slid more than 30%, the risk/reward profile has suddenly become quite attractive. 
• The technical indicators suggest we could be looking at a bottom being formed in the stock. 

While the rest of the stock market has been cruising toward highs in recent weeks, a handful of stocks have seen their fortunes diverge violently. That includes tech stocks, which, on the whole, have been outperforming all others as expectations rise for an interest rate cut. 

Take Snowflake Inc NYSE: SNOW for example. The data storage giant managed to catch most of the run that started back in November and had gained more than 70% by the end of February. But then a dodgy earnings report, with signs of slowing growth, caught investors by complete surprise and sent them stampeding for the door. 

With almost all that 70% rally now given up, just how justified has this selloff been? Snowflake shares have barely had a green day in the past three weeks, and were even setting a fresh low in Tuesday’s session. Well, according to a range of analysts, we’re starting to get to the extreme end of the selloff where the risk / reward profile is suddenly looking attractive. 

Several Bullish Comments on Snowflake

This week alone, the likes of Monness Crespi & Hardt upgraded their rating on Snowflake shares, something that the Guggenheim team also did last week. On Friday, the investment firm shared bullish comments in a note with clients, saying the company was still a “valuable asset” that had only become more tempting as a long-term investment after the recent dip. While acknowledging the headwinds that exist right now, Guggenheim is still bullish on the industry as a whole, as well as Snowflake’s ability to continue capturing market share in the years ahead. 

It was a view that echoed that of the Citi team, who reiterated their Buy rating on Snowflake shares earlier this month while giving them a refreshed price target of $240. Considering Snowflake shares were trading around the $155 mark during the first half of Tuesday’s session, investors are looking at a targeted upside of more than 50%. It's not bad for a tech company that’s reporting record revenues. 

Still, Snowflake has some work to do to win back the market’s trust. Sharing softer guidance than expected last month, along with announcing changes in the executive team, have given investors pause for thought, and they’ll want to see a marked improvement in the next earnings report.

Considering the Technical Case for Snowflake Stock 

But in the meantime, there’s an opportunity here. Alongside the bullish outlook and 50% targeted upside, investors are looking at a stock that, going off the technical definition, is extremely oversold right now. This is based on Snowflake’s Relative Strength Index (RSI), which looks at a stock’s recent trading performance and spits out a reading between 0-100, where anything above 70 is overbought, and anything under 30 is oversold. 

Needless to say, at 27, Snowflake shares are firmly in the latter category. You never want to make a decision solely on this kind of indicator, but it lends considerable weight to the bull thesis right now.

Getting Involved with Snowflake Stock 

It’s also worth noting that even though Snowflake shares hit a fresh low yesterday, they rallied all the way into the close and finished higher than the previous day. Technically, this is also bullish, as it suggests the bears have run out of steam, and Wall Street is starting to grab shares at bargain prices. With the benchmark S&P 500 index on the cusp of setting another record high, there’s just too much bullish and risk-on sentiment in the market right now for a stock like Snowflake to remain so beaten down. 

Investors should look for Snowflake to at the very least consolidate around the $160 mark through the end of the week, with a strong likelihood for yesterday’s run to turn into something bigger in the near future.