Many investors dream of a small investment in a stock leading to a million-dollar return. Indeed, stocks such as Amazon or Apple brought such returns for long-term investors.
However, finding such stocks is a challenging feat. Even if one buys a stock with tremendous potential, outsized returns are not guaranteed. Still, such returns tend to come from fast-growth companies offering something new to the marketplace, and given its rapid growth and potential in the data cloud, Snowflake (SNOW -3.38%) warrants a closer look.
Why investors should look more closely at Snowflake
Snowflake is likely to keep generating outsized growth because it is increasingly becoming the data cloud software of choice for enterprises. Its software stores and secures data and allows for complex data pipelines, large-scale analytics, feature engineering, interactive applications, and more, all with one platform-agnostic engine.
This solves the critical problem of storing data while controlling permissions and changes in one centralized location, protecting the integrity of one's data sets. Snowflake stands out above competing data products by functioning well regardless of a company's cloud infrastructure provider.
Consequently, it has attracted considerable investor interest. The best-known of those investors is Warren Buffett's team at Berkshire Hathaway, which made a $250 million investment and bought more than 4 million shares from another stockholder prior to the IPO.
Snowflake's tremendous potential
Although Buffett's association may imply a "millionaire-maker" status, the numbers may offer a conflicting picture.
Admittedly, Snowflake continues to show signs that it is building the future. Gartner Research believes the industry will bring a $248 billion total addressable market by 2026, and Snowflake has barely begun to address that market. It reported nearly $1.5 billion in revenue in the first nine months of fiscal 2023, 77% more than in the same period in the prior year.
That came as it drew interest from key customers. It has attracted nearly 7,300 customers to its platform as of the end of its fiscal third quarter (which ended Oct. 31), rising 34% over the previous 12 months. But where it excelled was with customers who spend $1 million or more on the platform annually. That amounted to 287 customers, nearly doubling over the last year.
Beware its challenges
Nonetheless, other numbers might lead investors to question its millionaire-making potential. With operating expenses exceeding revenue, Snowflake's losses rose to $590 million in the first three quarters of fiscal 2023, up from $548 million in the same period last year. Those losses and the tech bear market have contributed to a drop of more than 60% from its all-time high.
Additionally, it trades at a price-to-sales (P/S) ratio of 27. Considering that peers such as Amazon and Alphabet sell for less than 5 times sales, Snowflake appears quite expensive.
SNOW PS Ratio data by YCharts
And even for investors who can shrug off losses and lofty valuations, the $50 billion market cap may call its millionaire-making potential into question. That market cap takes Snowflake deep into large-cap territory. It also compares poorly to past millionaire-makers such as Amazon, which helped mint millionaires by beginning its trading history as a small-cap stock. That allowed early Amazon investors to buy when the market cap was still under $1 billion, a small fraction of Amazon's $1 trillion market cap today.
Could Snowflake make you a millionaire?
Snowflake's market cap makes reaching a millionaire status unlikely for small investors. The current market cap leader, Apple, has a market cap of $2.4 trillion, and reaching that point would take a 48-fold increase. Even a $10,000 initial stake will not make one a millionaire at such a growth rate in this cloud stock.
Nonetheless, Snowflake stands an excellent chance of taking a small investor much closer to millionaire status. Snowflake's revenue amounts to less than 1% of the total addressable market in 2026. And with its massive growth rate, the stock price will likely grow longer-term, making Buffett's team and the investors who copy its strategy much wealthier over time.
