Shares of Snowflake (SNOW) surged in aftermarket trading after it reported better-than-expected second-quarter earnings. However, the stock gave up those gains in early trading the following day. Snowflake’s adjusted earnings per share came in at 22 cents, beating analyst expectations, while revenue increased by 36% from the same period last year. Despite this positive performance, the company’s sales outlook for the rest of fiscal 2024 fell short of analysts’ expectations. Snowflake officials believe the company is well-positioned to benefit from the growing interest in AI and machine learning, as the demand for a solid data strategy becomes increasingly evident.
Snowflake’s stock initially rose after its strong earnings report, but later declined. The company has forged a partnership with Nvidia to develop custom large language models for AI, allowing businesses to utilize their data in the Snowflake Data Cloud. Large companies have been seeking ways to optimize spending on cloud services, and signs of improvement in this market had been observed leading up to Snowflake’s earnings report. However, Snowflake management noted that its largest customers continue to view software costs cautiously.
While Snowflake derives most of its revenue from overall consumption rather than subscription fees, the company’s profitability is expected to improve, along with the potential growth tailwinds from AI. William Blair analyst Jason Ader expressed optimism about Snowflake, believing that signs of encouragement in consumption trends are emerging and that profitability improvements will coincide with a recovery in cloud consumption next year. Despite a weak IBD Composite Rating and a decrease in share value this quarter, Snowflake stock ended the regular trading session slightly higher.