Goldman Sachs remains optimistic about Snowflake: Slowing growth is not a concern, core metrics are healthy, and AI momentum is still strong

Despite Snowflake's latest financial report showing a slowdown in revenue growth compared to previous periods, which caused stock price fluctuations in after-hours trading, Goldman Sachs still maintains its "Buy" rating and raises the target price to $275. Goldman Sachs believes that the market's concerns about short-term growth fluctuations overshadow the company's strong performance in its core business and its accelerated monetization capabilities in the field of artificial intelligence.

Snowflake's third-quarter performance shows that product revenue grew by 29% year-on-year, slightly above market expectations, but the extent of the outperformance has narrowed compared to the first half of the year. Meanwhile, the company's AI business has made milestone progress, achieving an annualized AI revenue run-rate of $100 million a quarter ahead of schedule. However, due to previously high investor expectations and accustomed to significant outperformance in the past few quarters, the stock price fell by 8% in after-hours trading.

In response, Goldman Sachs stated in its research report on the 3rd that Snowflake's AI strategy is becoming a "multiplier" for business growth, and the net expansion rate (NER) of core customers remains at a healthy level of 125%. Analysts believe that although consumption models themselves exhibit quarter-to-quarter volatility, the spending environment for enterprise customers remains healthy, as evidenced by record new contract obligations (RPO) and the rapid adoption of AI products, indicating that future growth potential has not been impaired.

However, not all voices in the market are positive. Nomura takes a more cautious stance, believing that Snowflake's current valuation has already adequately reflected the AI growth expectations emphasized by Goldman Sachs. If future consumption fluctuates or the pace of AI adoption slows, its valuation multiples may face pressure. The divergence between bulls and bears mainly focuses on whether AI can bring sustained increases in consumption and whether the current stock price has already discounted future growth potential.

AI as a "Multiplier" for Business Growth

According to Goldman Sachs' report, Snowflake is rapidly proving its commercial value in the era of generative AI. The company not only achieved its $100 million annualized AI revenue target a quarter ahead of schedule, but the adoption rate of its AI-related products is also rising sharply.

Data shows that Snowflake Intelligence has become the fastest adopted new product in the company's history, with over 1,200 customers currently using it. Additionally, 50% of bookings in this quarter were influenced by AI factors; currently, 58% of customers are using Snowflake's AI features weekly. Goldman Sachs believes that AI is becoming a "force multiplier" for Snowflake's business In addition to direct revenue contributions, Snowflake is continuously expanding its monetizable product landscape, including product lines such as Cortex, Openflow, Snowpark, and Iceberg. Goldman Sachs believes that as these products combine with the ongoing cloud migration trend, they will strongly support the company in maintaining a mid-term revenue growth rate of over 20%.

Core Metrics Remain Robust, No Need to Overly Worry About Growth Volatility

Although the market was somewhat disappointed that third-quarter product revenue only exceeded expectations by 2.3% (a decrease compared to the over-expectation level in the second quarter), Goldman Sachs believes this reflects more of an overly high psychological expectation from investors rather than a deterioration in fundamentals.

From the perspective of core operational metrics, Snowflake's performance remains strong. The net new RPO in the third quarter reached a record $949 million, with the number of new customers at 615, far exceeding the 343 from the previous quarter. Meanwhile, the previously market-focused net revenue retention rate (NER) remained stable at 125%.

Goldman Sachs believes that the consumer-oriented business model itself has higher volatility, which was evident in the third quarter, but combined with the fourth quarter's guidance exceeding expectations (27% year-over-year growth) and strong new order data, this indicates that customers' willingness to spend has not only not weakened but has shown signs of acceleration.

If Snowflake can maintain a similar over-expectation performance in the fourth quarter, its exit growth rate is expected to reach 30%, which would mean an acceleration in growth compared to the third quarter.

Valuation Discrepancy: Goldman Sachs Bullish While Institutions Are Cautious

Despite Goldman Sachs being confident about Snowflake's prospects and emphasizing its excellent performance in the "Rule of 50" (the sum of growth rate and profit margin), there are still discrepancies within Wall Street.

Nomura maintained a "Hold" rating in its research report on the 4th, setting a target price of $238. Analysts believe that while Snowflake's execution remains strong and AI revenue has reached a precise scale of $100 million, the current valuation already incorporates optimistic expectations for AI-driven growth, which can be described as "priced for perfection."

Nomura's viewpoint is that, although there is momentum for AI in the POC (Proof of Concept) stage, there is yet to be clear evidence that AI workloads can significantly increase the overall consumption of the platform on a sustained basis. Additionally, the firm raised a long-term structural concern: as AI's ability to process unstructured data improves, it may change the paradigm of data analysis in the future, potentially eroding Snowflake's traditional total addressable market (TAM).

In contrast, Goldman Sachs places more emphasis on Snowflake's long-term moat as a data cloud platform. Goldman Sachs believes that as Snowflake continues to expand its monetizable surface area and deeply engage in the cloud migration wave, its competitive position remains solid, and the current stock price pullback provides a favorable risk-reward ratio for long-term investors