Artificial intelligence (AI) investing is a broad space. There are many ways to get in on the investment, whether through hardware, software, or other ancillary products necessary to produce an AI model.
At the heart of any AI model is data, and ensuring that the right data is plugged into the model is critical for the best results. However, collecting, storing, and processing data isn't always easy, so companies utilize Snowflake (SNOW +0.80%) to aid in this practice.
Snowflake is a clear beneficiary of the AI revolution, but there are a couple of great reasons why it's worth buying now.
1. Snowflake's product is universal
As mentioned above, Snowflake is in the data cloud business. It helps customers collect structured, semi-structured, or unstructured data and efficiently store it. Then, clients can utilize it for their internal models, feed the data stream into other programs, or bundle the data package up and sell it on the Snowflake marketplace to other companies that may not have access to that type of data.
NYSE: SNOW
Key Data Points
Snowflake integrates with all three major cloud companies, making it easy to switch between providers or maintain two contracts so clients can't be locked into unreasonable deals by one provider.
Because Snowflake is a neutral player in the space and only provides the tools to help its clients who want to build AI models, it's a great way to capitalize on the general rise of AI.
2. Customers love Snowflake
To say customers are satisfied with Snowflake's products is an understatement. In the fourth quarter of fiscal year 2024 (ended Jan. 31), its net revenue retention rate was 131%, meaning existing customers spent $131 for every $100 they spent last year.
Spending expansion is key for software-as-a-service (SaaS) businesses like Snowflake and plays a big part in the company's overall product revenue growth of 33%.
It also has a high net promoter score (NPS) of 67, indicating that customers are extremely satisfied with the product and actively promote it to peers. With the average NPS score of SaaS companies hovering around 41, it's a far better product than your average business produces.
3. The stock is the cheapest it has been in a long time
As a result of how strong the company is, its stock was hardly ever cheap. Shortly after its IPO in late 2020, Snowflake's stock reached nearly 200 times sales -- an unsustainable level.
Through a combination of growth and multiple contractions (when investors aren't willing to pay as much for a stock), Snowflake's stock came down to an average of 23 times sales since the start of 2023.
SNOW P/S Ratio data by YCharts
However, one obvious data point in the chart above is the massive fall to just 19 times sales in recent weeks. Why is that?
All signs point to longtime CEO Frank Slootman suddenly retiring following Q4 earnings. Slootman led Snowflake through rapid growth and its IPO, but he has been replaced by Sridhar Ramaswamy, who has only been there for just over a year.
However, prior to Snowflake, Sridhar worked at Alphabet, where he led Google's advertising business from $1.5 billion to over $100 billion in revenue during his 15-year tenure. That sounds like someone well qualified to lead Snowflake into its next business phase, and investors should be excited about him taking the reins.
With much of the stock's reaction coming from Slootman's retirement, I'd say Snowflake has emerged as a strong AI stock investing candidate.
With fiscal year 2025 (ending Jan. 31, 2025) slated to be strong with 22% product revenue growth, Snowflake remains a great stock to buy. Under Ramaswamy's leadership, investors shouldn't be surprised to watch Snowflake grow from around $2.7 billion in annual revenue to the company's long-term goal of $10 billion by the end of fiscal year 2029 (ending Jan. 31, 2029).
