Despite Snowflake's latest earnings report showing a slowdown in revenue growth compared to previous quarters—triggering stock volatility in after-hours trading—Goldman Sachs has maintained its "Buy" rating and raised the price target to $275. The firm believes market concerns over short-term growth fluctuations overshadow Snowflake's robust core business performance and accelerating monetization capabilities in AI.
Snowflake's Q3 results revealed a 29% year-over-year increase in product revenue, slightly exceeding market expectations but with a narrower beat compared to the first half of the year. Meanwhile, the company achieved a milestone in its AI business, reaching $100 million in annualized AI revenue (Run-rate AI Revenue) a quarter ahead of schedule. However, due to elevated investor expectations and prior quarters of significant outperformance, the stock fell 8% in after-hours trading.
In a December 3 research note, Goldman Sachs argued that Snowflake's AI strategy is becoming a "force multiplier" for growth, with core customer retention (NER) remaining healthy at 125%. Analysts noted that while consumption models inherently exhibit quarter-to-quarter volatility, record-high remaining performance obligations (RPO) and rapid adoption of AI products indicate sustained enterprise spending and intact growth potential.
Not all analysts share this optimism. Nomura struck a more cautious tone, suggesting Snowflake's current valuation already reflects Goldman's bullish AI growth expectations. The firm warned that any future consumption volatility or slower AI adoption could pressure valuation multiples. The debate centers on whether AI can drive sustained consumption growth and whether current prices have overshot future potential.
**AI as a "Force Multiplier"** Goldman's report highlights Snowflake's rapid validation of its commercial value in the generative AI era. The company not only hit its $100 million annualized AI revenue target early but also saw sharp uptake of AI-related products. Snowflake Intelligence became its fastest-adopted new product ever, now used by over 1,200 clients. AI influenced 50% of Q3 bookings, with 58% of customers using Snowflake’s AI features weekly. Goldman views AI as a "force multiplier" for the business.
Beyond direct revenue, Snowflake is expanding monetizable product lines like Cortex, Openflow, Snowpark, and Iceberg. Goldman believes these—combined with ongoing cloud migration trends—will support mid-term revenue growth above 20%.
**Healthy Core Metrics Mitigate Growth Concerns** While markets expressed disappointment over Q3 product revenue beating expectations by just 2.3% (narrower than Q2’s beat), Goldman attributes this to inflated investor expectations rather than deteriorating fundamentals. Key operational metrics remained strong: net new RPO hit a record $949 million, and new customer additions surged to 615 from 343 in Q2. Net revenue retention (NER) held steady at 125%.
Goldman emphasizes that consumption-based models naturally exhibit higher volatility, as seen in Q3. However, with Q4 guidance projecting 27% year-over-year growth and robust new orders, customer spending appears to be accelerating rather than weakening. If Snowflake delivers a similar Q4 beat, its exit growth rate could reach 30%, signaling reacceleration.
**Valuation Divide: Goldman’s Conviction vs. Caution** While Goldman touts Snowflake’s "Rule of 50" (growth plus margin) excellence, Wall Street remains split. Nomura maintained a "Hold" rating on December 4 with a $238 target, arguing that while execution remains strong and AI revenue has scaled to $100 million, current valuations already price in optimistic AI-driven growth—making the stock "priced for perfection."
Nomura acknowledges AI’s proof-of-concept momentum but sees no clear evidence that AI workloads will sustainably boost overall platform consumption. It also flags a structural risk: as AI improves unstructured data processing, future analytics paradigms could erode Snowflake’s traditional data warehouse total addressable market (TAM).
In contrast, Goldman focuses on Snowflake’s long-term moat as a data cloud platform. The firm asserts that expanding monetizable surfaces and deep cloud migration integration reinforce its competitive edge, with the recent pullback offering attractive risk-reward for long-term investors.
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