Even though data cloud specialist Snowfake (SNOW 3.69%) reported better-than-expected fiscal second-quarter results earlier this week, shares have pulled back slightly since the report. But analysts seem unfazed. Indeed, the average 12-month analyst price target for the stock implies about 30% upside. Further, virtually every Wall Street analyst to release notes on the growth stock and update their model following the company's report has reiterated a buy rating (or an equivalent rating like "overweight" or "outperform").

But are analysts right to remain so bullish on the stock even as the company's top-line growth slows dramatically and management is guiding for a further slowdown in the current quarter?

Let's take a look at what analysts are saying and why investors may want to view their price targets skeptically.

The bull case

A review of four analysts' upbeat notes on the stock following the company's earnings report reveals several common themes. In general, the analysts pointed to improving business trends more recently.

"[T]he sentiment really seemed to change in July, with customers really reengaging with us," explained Snowflake chief financial officer Michael Scarpelli during the company's fiscal second-quarter earnings call when discussing bookings trends. Though Scarpelli was careful to warn that improved bookings don't translate directly to consumption -- and consumption is ultimately how the company records revenue since Snowflake operates a usage-based business model.

A Raymond James analyst who has an outperform rating on the stock and a $170 12-month price target also drew attention to Snowflake's opportunity in artificial intelligence (AI).

This observation reflects management's comments on the matter.

"Generative AI is at the forefront of customer conversations," noted Snowflake CEO Frank Slootman in the company's fiscal second-quarter earnings call. "However, enterprises are also realizing that they cannot have an AI strategy without a data strategy to base it on." He went on to note that Snowflake's data-sharing platform uniquely positions the tech company to help enable customers' AI workloads.

Buyer beware

While Snowflake is well-positioned amid many growth trends, investors should consider the risks carefully before rushing to buy shares. Sure, the company grew fiscal-second quarter revenue 36% year over year. But that growth rate is down from 48% for the quarter ending just three months earlier. Even more, Snowflake management guided for fiscal third quarter product revenue (typically about 95% of Snowflake's total revenue) to grow at an even slower pace of between 28% and 29%. 

Given the stock's nearly $50 billion market capitalization despite the the company still reporting net losses, the market seems to anticipate Snowflake's growth rate stabilizing and eventually even reaccelerating. But when asked directly during the company's earnings call if management expects growth to reaccelerate next year, Scarpelli simply said, "Let us finish Q3, and then we'll [...] see how next year is looking." But he did point to "a lot of new things coming out next year" as it relates to platform features that he expects to impact the company's revenue growth rate positively.

Overall, the stock price already seems to be pricing in a stabilization and rebounding of growth rates. Nevertheless, most analysts remain bullish on the stock. So perhaps I'm underestimating the company's long-term potential.