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Down 59%: AI Growth Stock Snowflake Inc. Could Have Explosive Upside – But There’s a Catch
AI Growth Stock
The tech industry is known for meteoric rises and sudden crashes, and Snowflake is the latest example of a stock that seemed unstoppable until it hit a wall. Although the company’s stock is down 59% since reaching an all-time high of $319.88 earlier this year, its long-term prospects remain solid.
Snowflake has established itself as a reliable provider of cloud-based data warehousing solutions, a technology that businesses rely on to store and manage large amounts of data. The security of its solution has earned the company tens of thousands of customers, among them some of the world’s biggest companies.
However, while the potential for the stock is there, investors should be aware that the risks involved with Snowflake are significant. First, the company is a recent IPO, so investors have limited information to make a proper assessment. Additionally, the technology is still relatively unproven, so rapid growth and profitability could take longer than expected. Also, competition in the industry is heating up, and some of the biggest competitors in the space such as Microsoft and Oracle have superior resources and could eventually overtake Snowflake.
Nonetheless, there is still value to be had in Snowflake at current prices. If the company can continue to increase its customer base and develop more features to remain competitive, the stock could have an explosive upside. But, as with all investments, it’s important to do your due diligence before investing.
Snowflake
The fact that shares of Snowflake have declined by 59% since their peak on September 28th has caught the eyes of investors. On the surface, the company looks to have great potential for growth, given its leadership in the emerging cloud data-warehousing sector, its customer base of 83,000 organizations, and its strong financials.
However, there are a few crucial considerations to take into account before investing in the stock.
First, investors considering Snowflake need to be aware of its financing structure, which was designed to fuel growth. As a result of its initial public offering (IPO) in September 2020, Snowflake sold a large number of shares and raised a significant amount of cash. With that said, the company still has almost $3 billion of long-term debt; its total liabilities exceed its total assets by over $2.3 billion.
Also, Snowflake is currently unprofitable and the company has yet to turn a profit. It has reported a net loss of $640 million in the first nine months of 2020; while revenue increased 122% year-over-year.
Finally, to add to the risk, Snowflake’s share price has been volatile since its IPO. This means that there could be further declines if current trends continue.
All in all, while Snowflake appears to have potential for explosive upside, investors need to be aware of the potential risks before investing. Prospective investors should assess the company’s growth prospects, its financials, and its stock price volatility before investing.
AI stocks dizzying
Snowflake shares surged as much as a 479% from its IPO price of $120 to an all-time high of $675, but have since dropped 59%, bottoming out around $280 this month.
The AI stock’s dizzying gains during the first quarter began to unravel amid surging analyst price targets, a correction in red-hot technology stocks, and a softening in snowflake’s fundamentals. The company reported a disappointing earnings report for the first quarter that showed slowing revenue growth and higher than expected losses, prompting a sell-off in the stock.
But with shares now down 59% from their all-time highs, some investors may see an opportunity to buy into a value stock with explosive upside potential. Snowflake has an enterprise value of just $80 billion compared to the market capitalization of its tech peers, and it could be driven higher as the market regains confidence in the company’s long-term growth prospects.
The catch? Snowflake is still a high-risk investment. The company has not yet proven that it can generate sustained profitability and its valuation is still high when compared to peers. In addition, Snowflake is likely to face increased competition from open source software projects like Google’s BigQuery as well as rival cloud data storage providers.
For investors who are comfortable taking on risk, however, Snowflake could be an attractive investment opportunity with potentially huge upside.
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Disclaimer:
The information provided in this article is for informational purposes only and should not be considered as investment advice. The stock market can be volatile, and investing in stocks carries risks. Always do your own research and consider consulting with a financial advisor before making any investment decisions.
