Snowflake stock has experienced an impressive surge, climbing approximately 70% since late October and reaching its highest level in nearly two years—a trend that has caught the attention of analysts. Stephen Bersey, head of U.S. technology research at HSBC Global Research, recently downgraded Snowflake stock from a Buy to a Hold rating. While he raised the target price slightly to $214 from $212, reflecting higher earnings estimates, the new target price still falls short of the stock’s current value. On Thursday, Snowflake shares dipped 2.7% to $229.60.
Bersey highlights Snowflake’s “strong fundamentals” as a notable aspect of the company’s appeal. He expects adjusted earnings per share to grow at a compounded annual rate of 47% through 2028, driven by a combination of 30% revenue growth and an anticipated 14 percentage-point improvement on non-GAAP operating margins. The increasing adoption of artificial intelligence by customers is expected to contribute to further improvement in consumption trends.
However, despite acknowledging these positive aspects, Bersey finds Snowflake’s valuation to be “full.” The stock currently trades at a high multiple of 187 times his calendar 2024 earnings-per-share estimate, significantly more than the average enterprise-software company. Bersey highlights that the company will continue to incur losses according to generally accepted accounting principles until fiscal 2026 when it is projected to turn a profit in fiscal 2027.
In summary, while Snowflake’s stock has been on an upward trajectory, Bersey suggests that the risk-reward trade-off is no longer attractive.