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Why Snowflake Surged 17% in October

By Billy Duberstein – Nov 8, 2021 at 8:26AM

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A new partnership boosted the stock leading up to earnings.

What happened

Shares of cloud-based data warehousing company Snowflake (SNOW 4.33%) surged 17% in October, according to data from S&P Global Market Intelligence.

Snowflake didn't report earnings in October, but the tech sector bounced back broadly from a September swoon. Moreover, several other cloud companies did report during the month, mostly with strong growth.

In addition, Snowflake announced a new partnership with another high-powered enterprise tech company, boosting optimism around their combined offerings. 

A cloud icon with data shooting out of it.

Image source: Getty Images.

So what

Snowflake announced a partnership with robotic process automation company UiPath (PATH 3.30%) in October. UiPath is an up-and-coming software company that helps businesses automate lots of time-consuming tasks. As part of the partnership, UiPath will integrate its UiPath Insights platform, which gathers data on a company's automation, with Snowflake's data platform. Their combined capabilities will likely make customer journeys to the cloud easier and more successful.

UiPath had been somewhat of a market darling this year after going public to much fanfare back in April. Snowflake has been a market darling itself since it went public just over a year ago, so to see these two fashionable companies link up boosted sentiment around each.

In addition, tech stocks performed well in October, bouncing back from a September in which inflation fears gripped markets and sent the tech sector down. All of the FAANG stocks reported during October, and their results likely boosted sentiment for other cloud-based SaaS companies like Snowflake.

Now what

Snowflake doesn't report earnings until December 1, so investors will have to monitor results in the cloud sector until then. Management is guiding between $280 million to $285 million in product revenue, which would mark 88% to 92% year-over-year growth.

Given the strength in cloud names, a beat seems like a good bet; yet after the stock's recent surge, Snowflake remains very expensive, at nearly 130 times sales.

Billy Duberstein has the following options: short December 2021 $120 puts on Snowflake Inc. and short January 2022 $35 puts on UiPath Inc. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Snowflake Inc. and UiPath Inc. The Motley Fool has a disclosure policy.

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