Snowflake Stock Gets an Upgrade Ahead of Earnings

Snowflake Inc. signage on the floor of New York Stock Exchange (NYSE) in New York. (Michael Nagle/Bloomberg)

Snowflake stock was rising slightly on Wednesday after a BofA Securities analyst upgraded shares of the cloud-based data storage company on confidence there’s solid demand as customers are investing in data services to support artificial intelligence.

Brad Sills upgraded shares of Snowflake to Buy from Neutral and raised his price target to $240 from $220 on Wednesday. That new price target implies a 25% increase from the stock’s last closing price of $192.63.

“Demand is strengthening as customers look to Snowflake as a key component in the AI tech stack,” Sills wrote in a research note.

Shares of Snowflake have risen 26% this year and 44% over the past 12 months. The company gave better-than-expected financial guidance with its earnings report in May, when it posted its first $1 billion revenue quarter. Enterprises are spending big on AI tech that is meant to improve productivity and cost savings, and Sills believes that trend is set to continue.

“We also conducted an inaugural survey of Snowflake customers with results showing spend acceleration supported by momentum across AI and data storage offerings,” Sills said. He added that “expansion of existing AI workloads, increase in new AI workloads, and adoption of new products are driving increasing spend.”

Still, there are risks, including competition. A top competitor for Snowflake is Databricks. According to a report from The Wall Street Journal on Tuesday, Databricks is finalizing a funding round that would value it at $100 billion, or 61% higher than its last funding round in December.

Snowflake stock is also expensive, trading at 142.6 times earnings expected over the next 12 months.

Snowflake stock was rising 0.8% to $194.14 on Wednesday, while the S&P 500 was down 0.4%. The company is expected to report second-quarter earnings on Aug. 27.

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