UBS says Snowflake benefits from a direct tailwind as more apps and data move into Amazon Web Services.
DreamstimeSnowflake shares are trading higher Tuesday after UBS analyst Karl Keirstead launched coverage of the cloud-based data warehouse and analytics software supplier with a Buy rating and $275 target price.
Keirstead says that multiple discussions with customers were bullish for Snowflake (ticker: SNOW).
“The consensus from our customer checks was that spending growth on data analytics technology running in AWS [Amazon Web Services], Microsoft Azure and Google Cloud is likely to be material over the coming years and that market penetration remains low,” he writes in a research note. He says that while some customers were using a rival Amazon.com (AMZN) service called AWS Redshift, “the planned spending growth with Snowflake was much greater.”
He says that Snowflake is one of the new “AWS proxies” that get a direct tailwind as more apps and data move into Amazon Web Services.
As Keirstead concedes, the stock is not cheap, and investors have been moving away from high-price software stocks. But he’s bullish anyway.
“The overall Software sector is down 16% and the subset of 30%+ growth software stocks is down 25% over the last 5 weeks,” he writes. The analyst says that he’s hardly being conservative by recommending a company trading at 42 times calendar year 2022 estimates in the middle of a sector selloff, but that “Snowflake’s growth outlook is simply too compelling, and with the stock off 44% from its December highs, we like the risk-reward here.”
Snowflake stock is up 0.6%, at $221.97, in recent trading, while the S&P 500 is flat. Snowflake is down 21% year to date.
Write to Eric J. Savitz at eric.savitz@barrons.com
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