Snowflake’s bullish tailwind is turning into a gale-force wind

Key Points

• Snowflake had a solid quarter, and shares are on track to set a new multi-year high. 
• Analysts are raising their price targets and see the stock breaking out of its range over the coming quarters. 
• Institutions provide a ceiling but may switch to buy mode now that results and guidance are in. 

The headwinds that drove Snowflake NYSE: SNOW shares to their 2022 lows began to recede early this year. Persistent outperformance and solid guidance supported by better-than-expected business spending were enough to get the analysts to stop lowering their targets. As the year progressed, the trends led analysts to begin raising their targets, and that trend is gaining momentum now. Snowflake continues to outperform its expectations and give solid guidance, spurring the analysts to raise their targets and lead the market higher. 

The post-release activity is robust enough to put Snowflake on Marketbeat’s Most Upgraded Stocks list. Marketbeat.com is tracking 12 revisions, including 11 boosted priced targets and reiterated Outperform with a $200 target. This has the stock in the 17th position for the preceding 90 days and the 5th position for the last 30. 

The reiterated $200 price target from JPM Securities is above the current broad-market consensus of $194.70, as are most of the fresh targets. The consensus of the dozen freshest has this market moving up into the $230 range or about 20% above the latest price action. Assuming this trend continues, this market should move above critical resistance soon and set itself up to sustain a rally in 2024. 

Snowflake has a beat-and-raise quarter

Snowflake had a solid quarter, with Q3 revenue topping $734 million for 32% of YOY growth. This is 280 basis points above the consensus estimate, driven by customer growth and penetration, led by product sales. Product sales are up 34% compared to last year, with the net retention rate up 135% and large customers up more than 50%, showcasing the appeal of its data-management tools to enterprise-level players. 

Cash flow, margin, FCF and earnings are also favorable to shareholders. The company’s product margin improved at the gross, operating, and FCF levels to drive solid bottom-line results. The adjusted $0.25 is well ahead of last year’s loss, beating by 56% and leading to improved guidance. 

Snowflake issued Q4 guidance that has analysts raising their estimates. The company projects product revenue with a mid-pit of $718.50 million or about 2.8% growth sequentially. The YOY comp is better at +30% and may be cautious. The company has clear momentum and products providing utility to clients, so should be expected to sustain high levels of growth until the AI boom runs its course. 

Sell-side activity caps gains in Snowflake:

The sell-side activity isn’t alarming but may be enough to keep the market from breaking out of its range. Insiders and institutions have been selling for the last several quarters, providing a ceiling for the price action. Insider sales are spread between multiple executives, directors, and large shareholders and are characterized by small, periodic transactions, so sales are more likely related to share-based compensation than not. Those sales will likely continue. 

Institutional selling is more concerning but remains light relative to the 64% total ownership. This selling may continue. It may also shift to the buy side now that guidance is in. In that scenario, sell-side activity would strengthen the tailwind provided by the analysts and aid upward movement in the stock price. 

The technical outlook: Snowflake stock is on track to attempt a move higher

The price action in Snowflake shares is suggestive. The market moved up from the low end of the range in a sustained rally before the Q3 release, showing support above the range bottom. The move is supported by bullish indicators that point to a test and possible break of resistance. Critical resistance is near $195, indicating a more robust upside if broken. In this scenario, the market could rise to the $200 to $220 range, but there is risk. If the analysts don’t continue to lift the consensus target, the market could become range-bound at a higher level until more news is available.