Snowflake Stock Is Having Its Best Day. Why Its Earnings Overshadow Nvidia's. -- Barrons.com

Angela Palumbo

Software stocks were outperforming semiconductor stocks after Snowflake and Nvidia reported earnings, highlighting what could be a trend in the months to come, according to one Mizuho analyst.

"The combo of SNOW material beat and raise, and super bullish earnings call last night coupled with NVDA good, but not great and a few concerns confirm my ongoing bias to favor software vs semis near term," Mizuho desk analyst Jordan Klein wrote on Thursday.

Snowflake reported late Wednesday third-quarter earnings and revenue that handily beat analyst estimates. The company also raised its product-revenue estimates for the year.

Shares of Snowflake jumped 29% Thursday to $166.03, and were on pace for their largest percentage increase on record, according to Dow Jones Market Data.

Nvidia also reported strong financial results on Wednesday. But even though its guidance was better-than-expected, it didn't blow Wall Street's minds. Shares of Nvidia were off 1.6% to $143.47.

Klein wrote that Snowflake's results, coupled with confident commentary from management, should give software stocks another boost ahead of the upcoming wave of earnings reports in December from peers such as Salesforce, Oracle, and MongoDB.

"If those all sound better, watch out! Software will rip higher into year end as money rotates in," Klein wrote. "That is a huge 'if,' but if you do not own enough software and those names rally, you could have a frustrating end of year."

Before Snowflake reported earnings, the stock was down 35% on the year amid concerns of a CEO departure, competition, and an expensive valuation. Investors were hoping for strong results to combat these worries, and had confidence coming into the print as other software stocks have gotten a recent boost from increased company spending on generative artificial-intelligence initiatives.

The iShares Expanded Tech-Software Sector exchange-traded fund was rising 1.5% Thursday to $104.88, and was on pace to close at a record high. The ETF has risen 29% this year. Meanwhile, the iShares Semiconductor ETF was flat on Thursday and has gained about 15% this year.

Snowflake and its peers' results show that semiconductor makers are not the only companies that can make money from generative AI.

"Management expressed confidence on the call in the traction that they are seeing with their newer products and their positioning in the AI race," Truist analyst Joel Fishbein wrote in a Wednesday note. "They noted that now have 3,200 customers using their AI/ML products on a weekly basis up from 2,500 last quarter and essentially 0 a year ago." ML stands for machine learning.

Fishbein rates Snowflake stock at Buy with a $210 price target.

The takeaway from Wednesday's results: Software's comeback is in full force, and investors might not want to put their eggs all in the semi basket.

Write to Angela Palumbo at angela.palumbo@dowjones.com

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November 21, 2024 11:48 ET (16:48 GMT)

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