Snowflake: Shares Are a Top Pick as Market Overlooks the Data’s Massive Need for a Home (or Igloo)

Snowflake SNOW is one of our top picks in the technology sector, as we see an attractive long-term investment opportunity in the no-moat firm implied in our $231 fair value estimate and our 4-star rating. We believe the market is significantly discounting Snowflake’s potential by underestimating three key areas: datasphere (total data in existence) growth, how differentiated Snowflake’s technology is, and the powerful potential of Snowflake’s small but mighty data marketplace. This leaves a meaty opportunity for investors, in our view, thanks to what we believe is a lack of understanding of this complex space.

We think Snowflake is a natural beneficiary of the booming datasphere growth we project into the future. We think the datasphere is growing powerfully at a roughly 28% compound annual growth rate over the next nine years for several reasons. First, there is the sheer addition of data points collected on individuals and things nowadays (like daily steps or office badge swipes), but there is also sizable net new metadata that comes into existence from greater use of artificial intelligence models that create such insights. All of this net new data needs a place to live—such as a data lake or warehouse, which Snowflake naturally caters to.

But we think Snowflake won’t be just a passive beneficiary of datasphere growth. We think the firm is well positioned to be a leading data lake and warehouse solution thanks to its differentiated technical abilities that streamline costs and effort in a typically resource-intense business. Examples of such technical differentiation include its interoperability amid all major cloud providers, easing the gruesome replatforming required for other data lakes and warehouses. Another example of technical differentiation includes its data-transforming intellectual property, which cuts dependency on costly Apache Spark servers (often the costliest part of owning a data lake or warehouse).