Snowflake (SNOW +37.33%) had a message for software investors last night: Don't give up on software-as-a-service (SaaS) stocks yet.
In a year when software stocks have gotten pummeled over concerns that AI-native products from start-ups like Anthropic could disrupt the leading enterprise software companies, Snowflake, a bellwether in the industry, seemed to dispel the notions of disruption in its first-quarter earnings report as the stock was up 34% on Thursday morning on the results.
Image source: Getty Images.
Snowflake's Q1
Revenue at the data warehousing specialist jumped 33% to $1.39 billion, ahead of estimates at $1.32 billion, and its net revenue retention rate was 126%, showing existing customers are increasing their spending by 26%. It grew remaining performance obligations, a proxy for backlog, by 38% to $9.21 billion, showing strong forward demand. On the bottom line, adjusted earnings per share improved from $0.24 to $0.39, beating the consensus at $0.32.
Snowflake also announced an expanded $6 billion collaboration with AWS to accelerate enterprise AI adoption, and acquired Natoma, a platform for AI agents.
Overall, the results showed that Snowflake isn't slowing down in the AI era, as product revenue accelerated for the second quarter in a row.
The surge in the stock shows how bearish some investors have gotten on the SaaS sector, as Snowflake stock was down roughly 20% year-to-date before the earnings report. Snowflake's post-earnings pop could portend the same from other unfairly beaten-down software stocks. Here are two that could follow in Snowflake's footsteps.
1. Axon Enterprise
Axon Enterprise (AXON +12.62%), a law enforcement technology company that makes the TASER electrical weapon, body cameras, and a suite of software for law enforcement agencies to manage their data, jumped 12% on Thursday, seemingly in response to news that the Trump administration is interested in funding drone companies. The gain also comes after Axon announced a new partnership with Echodyne to work on drone applications in law enforcement and homeland security, though there was no response to the news yesterday.
NASDAQ: AXON
Key Data Points
Snowflake's surge could have also caused investors to give Axon a second look, as that stock is also beaten-down after falling more than 50% from its peak and down 23% year-to-date, even after today's gains.
Like Snowflake, Axon stock has fallen in spite of continuing strong results, posting revenue growth of 34% in its first quarter, so it seems like a good candidate for a bounce-back if sentiment toward software stocks improves.
The company has a number of competitive advantages selling intergrating hardware and software to its customers, and through organic growth and a series of acquisitions, it's established itself as the clear leader in law enforcement technology.
2. Microsoft
Another stock that seemed to catch a tailwind from Snowflake's earnings report was Microsoft (Nasdaq: MSFT), which was up 3% as of 11:44 a.m. ET.
Among the news out on the stock today was that the company is planning to launch a new coding model next week, according to The Information, as it aims to catch up with AI rivals, including Anthropic and further separate itself from OpenAI.
NASDAQ: MSFT
Key Data Points
Like Snowflake and Axon, Microsoft has delivered strong results, even as the stock has gotten snubbed by investors. It's now down more than 20% from its peak last year as investors are concerned about the AI threat to its software business, though its software business continues to grow, and it's delivering brisk growth in its Azure cloud computing division.
Microsoft's AI products like Copilot have generally disappointed investors, but the new coding models could help correct that.
With a market cap of $3 trillion, Microsoft is unlikely to deliver a 34% gain in one session like Snowflake, but there is certainly an opportunity for the company to get back to its peak share price, which would represent a 30% gain, with improving sentiment and continuing growth.
Despite its recent struggles, Microsoft still looks like an AI winner.
