Snowflake Inc. shares have surged 45% since mid-June, and that’s giving UBS analyst Karl Keirstead pause.
He downgraded the software stock to neutral from buy Tuesday, writing that he would “prefer to move to the sidelines” given some more cautious signals in his latest round of conversations with partners and customers.
Keirstead spoke with three partners and four customers, and those conversations revealed that “about half” acknowledged “some likely pressure in their Snowflake
spending growth or practice areas.” One Fortune 500 customer mentioned being “more thoughtful about what goes into Snowflake,” and another described roughly a fifth of Snowflake workloads as being discretionary.
“The feedback was hardly a disaster, but we simply weren’t hearing such anecdotes a year ago,” Keirstead wrote. He also pointed to anecdotal evidence that “the overlap between Snowflake and Databricks is beginning to increase, faster than we were thinking last year.”
The stock was off 3% in Tuesday afternoon trading.
Keirstead pointed out that Snowflake shares have rallied sharply over the past few weeks amid better economic signals, such that the name is now trading at 20 times his estimates for calendar 2023 and fiscal 2024 revenue.
“In our view this makes for a less favorable set-up given the macro headwinds, more checks citing a desire to trim discretionary data analytics spend and Snowflake’s customer profile, which (like AWS) includes a number of emerging tech/internet firms and pandemic beneficiaries that may be moderating spending growth,” he wrote.
Keirstead joins BTIG analyst Gray Powell, who moved to a neutral stance on Snowflake earlier than August while also citing a slightly different tone when talking to customers about their spending intentions.
While the stock is up more than 40% from its three-month closing low in mid-June, it’s still down more than 40% on a 12-month basis. The S&P 500
is off about 4% in that span.
Snowflake is due to report fiscal second-quarter results Aug. 24.