One Wall Street Analyst Believes Snowflake Stock Has 20% Upside

snowflakesfirms(NYSE: SNOW)Shares fell sharply after the recent release of its financial results, but Rosenblatt Inc.)Analyst Blair Abernethy)sees this as a buying opportunity. He recently upgraded the stock from Neutral to Buy with a price target of $185. That's 20% above the stock's April 5 closing price.

Why Buy Snowflake Shares

The company's revenue growth has slowed over the past two years, limiting share price gains, but it still managed to post a 33% year-over-year increase in the fourth quarter of fiscal year 2024 (ended January 31st).

To Snowflake's credit, it has been signing long-term deals with its customers, and it has seen long pent-up demand for upcoming new products, such as Snowflake's Document AI, which allows users to quickly locate information in unstructured data.Abernethy likes the trend he sees in demand for the company's products. Abernethy likes the trends he sees in demand for the company's products.

Importantly, Snowflake's new product launches have been accompanied by growing free cash flow, which grew 57% last year to $779 million. This level of growth should help support the stock's valuation, which is currently trading at 66 times trailing free cash flow.

The stock may still be overpriced, but it is more than 60% below its prior peak. The recent sell-off may help lower growth expectations and set the stage for a rebound.

While it's uncertain how long it will take for the stock to reach its analyst price target, Snowflake has a great opportunity to capitalize on the growing demand for artificial intelligence (AI) services. Companies are eager to invest in this technology, but AI requires high-quality data, and Snowflake is a company that provides it. If new products like Document AI continue to gain traction with customers, the stock will continue to outperform other stocks in the coming years.

Should you invest $1,000 in Snowflake now?

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John Ballard does not hold any of the above stocks.The Motley Fool holds a recommendation for Snowflake.The Motley Fool has a disclosure policy.

Snowflake Stock Has 20% Upside According to One Wall Street Analyst was originally published by The Motley Fool.