Snowflake (SNOW 3.69%) investors had a turbulent May. Shares of the cloud-based data platform specialist were on a roller coaster ride, mainly due to Wall Street's reaction to results for the company's fiscal 2024 first quarter (ended April 30), which were released on May 24.
The stock gave up almost all its monthly gains in a single day as investors were concerned about a slowdown in the company's growth rate. However, Snowflake stock has made a solid recovery since then, gaining over 20% since May 25. More importantly, analysts believe that Snowflake stock has more upside to offer.
The stock carries a Street-high price target of $500, which would translate into gains of 180% from current levels. Some might argue whether Snowflake stock is capable of soaring so high given the weakness in customer spending it reported last quarter on account of macroeconomic headwinds. But a closer look at how artificial intelligence (AI) is capable of supercharging Snowflake's growth will tell us that a terrific rally in this cloud stock cannot be ruled out.
Snowflake sees AI as a key growth driver
Snowflake management spent a lot of time on the company's May earnings conference call explaining how AI could positively impact its business. CEO Frank Slootman pointed out that generative AI models, on which popular applications such as ChatGPT are based, are trained using huge amounts of data pulled from the internet.
Given that Snowflake allows customers to consolidate massive amounts of data into a single cloud-enabled platform from which they can derive insights and build applications, generative AI is likely to present a solid growth opportunity for the company. Snowflake believes that enterprises could create customized generative AI models with their own data sets, and this is where the company comes into play as it "manages a vast and growing universe of public and proprietary data."
The good part is that Snowflake's cloud data platform is already witnessing growth in AI-related demand. According to Slootman, "data science, machine learning, and AI use cases on Snowflake are growing every day. In Q1, more than 1,500 customers leverage Snowflake for one of these workloads, up 91% year over year."
Slootman also points out that the company's Streamlit platform has been used to build 1,500 large language model (LLM)-powered apps, including Open AI's GPT Lab that allows users to create custom AI assistants or gives them access to pre-trained AI assistants. Snowflake's data platform should witness an increase in AI-related applications as the generative AI market is expected to grow tenfold over the next decade, generating $118 billion in annual revenue in 2032.
It is also worth noting that Snowflake is already sitting on a massive total addressable market (TAM), which it expects to grow to $248 billion in 2026. The proliferation of AI could add to this already huge opportunity and speed up Snowflake's growth. Investors should also note that Snowflake has generated $2.3 billion in revenue in the trailing 12 months, a figure that pales in comparison to the company's potential TAM.
Can the stock deliver the terrific gains Wall Street expects?
Snowflake's mammoth TAM explains why the company has been growing rapidly over the years.
SNOW Revenue (TTM) data by YCharts.
What's more, its top line is expected to increase a healthy 33% year over year in the current quarter at the lower end of its guidance range to $620 million despite the slowdown in customer spending. While that figure fell short of the $647 million consensus estimate, and the company also trimmed its full-year guidance, Snowflake is still on track to delivering respectable growth.
The company expects product revenue to increase 34% in the current fiscal year to $2.6 billion, while overall revenue is expected to come in at $2.76 billion. Analysts are expecting Snowflake's top-line growth to remain solid over the next couple of fiscal years as well.
SNOW Revenue Estimates for Current Fiscal Year data by YCharts.
It won't be surprising to see catalysts such as AI help Snowflake deliver faster growth and even hit $5 billion in revenue in fiscal 2026. Even better, the company is anticipating $10 billion in product revenue at the end of fiscal 2029. If Snowflake does manage to hit its long-term revenue forecast and the stock trades at a significantly discounted 15 times sales instead of the price-to-sales ratio of 25 it is trading at right now, its market cap could jump to $150 billion in six years.
That would be a 160% increase from the company's current level and is close to the tremendous upside that Wall Street is expecting from Snowflake. So, investors on the hunt for a growth stock may want to take a closer look at Snowflake as the growing demand for its cloud platform amid the AI boom could supercharge the stock in the long run.
