One Wall Street analyst sees 16% upside for Snowflake stock

Snowflake (NYSE: SNOW)Weak expectations for the revenue outlook in the last business update led to a sharp fall in the share price. To date, the share price is down 20%, but theKeyBancanalysts see this as a buying opportunity.

KeyBanc has initiated a hold (buy) rating and $185 price target on the company's stock, which is usually a forecast for the next 12 months or so. The new price target represents a 16% increase from Thursday's closing price, and the firm is bullish on the cloud-computing provider's outlook as it continues to migrate its legacy data systems to the cloud.

Why Buy Snowflake Stock

Snowflake announced Q4 product revenue growth of 33% y/y, which would seem to be enough to support the stock's valuation, but Koon's guidance calls for Q1 y/y growth to slow to 26% to 27%.

The sell-off in the stock should reset expectations and create conditions for a better report, and KeyBanc believes the company's long-term growth rate will stabilize at 20% due to the continued migration of the曏 cloud service.

In fact, the cloud market remains a huge long-term growth opportunity. According to Canalys, total global cloud infrastructure services spending is estimated to be $290 billion in 2023, with a projected growth of 20% in 2024, up from 18% in 2023, which will provide good momentum for Snowflake's business, especially as organizations look for ways to manage their data in a way that prepares them for the use of artificial intelligence. The time to do so is now.

Snowflake's top-line growth has slowed significantly over the past few years, but with revenue growth stabilizing in the 20%+ range, investors will likely shift their attention to Snowflake's improving profitability. Prior to the sell-off, the company's shares were reasonably valued, so as Snowflake continues to grow, the analysts' target price for the shares seems justified.

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 16% Upside According to One Wall Street Analyst was originally published by The Motley Fool.