Could Snowflake Stock Help You Become a Millionaire?

Snowflake (SNOW -1.42%) has been a tough stock to hold since its public debut. The cloud-based data warehousing company went public at $120 per share on Sept. 16, 2020, and its price more than doubled to $245 on its first trade. The stock price eventually hit an all-time high of $401.89 on Nov. 16, 2021, but tumbled all the way back to $119.27 on Jan. 6, 2023.

Snowflake's stock currently trades around $170, but many of its early investors are still deep underwater. Could this volatile growth stock eventually stabilize and generate millionaire-making returns for investors who hop aboard today?

Image source: Getty Images.

Why has Snowflake's stock been so volatile?

Snowflake's volatility was largely driven by market hype and its inflated valuations. Its IPO gained a lot of attention because the company generated triple-digit revenue growth and triple-digit retention rates, and its big backers included Warren Buffett's Berkshire Hathaway and Salesforce.

All of that hype, along with the market's ravenous appetite for hypergrowth tech stocks, drove so many investors to Snowflake that it raised the price of its IPO from its original range of $75-$85 to $120. At $120, Snowflake was already valued at $33.3 billion -- or 56 times the revenue it would generate in fiscal 2021 (which ended in January 2021).

At its peak in November 2021, Snowflake's market cap reached $122.9 billion, or a whopping 101 times the revenue it would generate in fiscal 2022. Rising interest rates popped its bubbly valuation over the following year, and the macro headwinds throttled its revenue growth as companies reined in their spending on big software upgrades. Snowflake's lack of profits made it even less appealing than other blue-chip tech stocks.

Snowflake's market cap shrank to $39.9 billion by the time its stock bottomed out this January, but it still wasn't cheap at 30 times its fiscal 2023 sales. Nevertheless, the bulls still rushed back to Snowflake amid the recent tech stock rally and the market hype regarding AI stocks. At its current market cap of $55.4 billion, it's now valued at 20 times its fiscal 2024 sales.

Does Snowflake deserve that high valuation?

Snowflake's high valuation is worrisome because its growth in product revenue (which account for most of its top line) and net revenue retention rates (its year-over-year growth per existing customer) cooled off over the past three years.

Data source: Snowflake. YOY = Year over year.

That slowdown can be attributed to Snowflake's maturing business, as well as the macro headwinds. Intense competition from Amazon Web Services (AWS), Microsoft Azure, and Alphabet's Google Cloud Platform (GCP) -- which all bundle data warehousing solutions into their cloud infrastructure platforms -- could also be affecting its growth.

But at the same time, the growing need for centralized data sources -- driven by the secular expansion of the analytics, machine learning, and AI markets -- could give all of those data warehousing platforms room to grow without trampling each other. Snowflake expects its product revenue to rise from $1.9 billion in fiscal 2023 to $10 billion in fiscal 2029. That long-term outlook implies its product revenue will grow at a compound annual growth rate (CAGR) of 32% during those six years.

That growth rate would certainly be slower than its CAGR over the past few years, but it's still very impressive and could potentially support a forward price-to-sales ratio of 20 over the long term. Therefore, if Snowflake maintains its current valuations and reaches $10 billion in product revenue by fiscal 2029, it could potentially be worth more than $200 billion -- which would be nearly four times higher than its current market cap.

But would that really be a millionaire-making gain?

Even if Snowflake achieves a four-bagger gain in six years, investors would need to invest $250,000 in the company to reach $1 million. But over the longer term, Snowflake still has the potential to turn a smaller investment into a million dollars.

If Snowflake generates $10 billion in revenue in fiscal 2029, and it continues to grow at a more moderate CAGR of 23% for another 11 years, it would potentially generate $100 billion in revenue by fiscal 2040. At 20 times sales, Snowflake could be worth $2 trillion -- which would represent a 36-bagger gain from its current levels. That growth trajectory could turn a $28,000 investment into more than a million dollars.

We should take all of those hypothetical estimates with a grain of salt, but they all suggest that Snowflake could still have a lot of room to grow after its revenue growth and valuations stabilize. Snowflake burned a lot of overeager investors after its public debut, but it could still stabilize and become a millionaire-maker stock over the next few decades.