Data platform provider Snowflake Inc. (NYSE:SNOW)’s shares are up by nearly 50% over the past year. They closed a strong 16.6% higher on September 3rd, the day after the firm reported its second quarter earnings. With Snowflake Inc. (NYSE:SNOW) being a software company, like its peers, the debate for the firm surrounds the fact whether its AI initiatives are leading to solid growth or whether the firm is struggling to deliver profitability. Cramer was left impressed by the results as he commented in his morning appearance on the 3rd:
“Ohhh, Sridhar did quite a job last night, and it’s just a very easy. . .way to get a consumption model and get on the cloud. Was great for the cloud and now it’s just great for AI. And he did a fantastic job on the conference call, he’s had a fantastic job. . .what a great choice, he’s just remarkable, and he carries himself very, he comports himself so humbly. I love that.”
On the growth front, the second quarter saw Snowflake Inc. (NYSE:SNOW) deliver 37% growth in its product revenue and 35% growth in its overall revenue. Additionally, the firm also hiked its full-year product revenue guidance to $6 billion from the earlier $5.8 billion. The new guidance implied that Snowflake Inc. (NYSE:SNOW) would sustain its second-quarter growth into the year as well, since it guides a 36% annual growth. Similarly, the product revenue guidance for the third quarter guides a 37% to 38% growth to indicate continuing momentum. Crucially, Snowflake Inc. (NYSE:SNOW)’s management also outlined that nearly half of the firm’s acceleration in the second quarter came courtesy of AI.
Yet, even though the firm grew the topline, the bottom line figures are less than stellar. During the quarter, Snowflake Inc. (NYSE:SNOW)’s GAAP net loss sat at $191 million while its GAAP operating loss was $263 million. Additionally, the firm also lowered its full year gross margin guidance to 74% from 75% with lower contribution margins from AI compute workloads. Like cybersecurity firms focusing on bundling products or focusing on AI products through discounts, Snowflake Inc. (NYSE:SNOW) is also experiencing higher costs from its focus on AI.
The bifurcation between growth and costs follows through on the multiple. Snowflake Inc. (NYSE:SNOW) currently trades at a forward P/E multiple of 169, which is more than 2x of DataDog’s 70 and MongoDB’s 58. However, perhaps the hedge funds factored in the strong second quarter results. Insider Monkey’s data shows that in Q2, 103 funds had held a stake in Snowflake Inc. (NYSE:SNOW), which was substantially higher than the 80 funds in Q1. Among the notable new stakes were Viking Global‘s $244 million and Maverick Capital‘s $248 million. The higher valuation is accompanied by a higher short interest. Short interest as a percentage of float is 5.4% which is higher than the two peer firms.
READ NEXT: Jim Cramer Draws the Line on NVIDIA in China: Why National Security Comes First and Jim Cramer Defends His Dell Stance as Investors Complain About Missing Out.
Disclosure: None.
