Snowflake (SNOW) is trading in a tight range as investors await its fiscal second-quarter earnings, due after the market close on September 2. The stock was hovering near $319.80, down from last month's high of $341. While the company is expected to deliver robust growth, technical indicators are flashing a bearish signal that could lead to a post-earnings selloff.
Strong growth expected, but valuation is rich
Snowflake, a leading data warehousing platform, has been a key beneficiary of the AI boom. Its client roster includes major names like Honeywell, Amazon, Siemens Energy, Accor, and Zurich. In the fiscal first quarter, revenue surged 33% year-over-year to $1.39 billion, with a net retention rate of 126%. The company also saw its number of customers spending over $1 million annually rise to 779.
Analysts are optimistic about the upcoming results. According to Yahoo Finance, consensus estimates call for revenue of $1.48 billion, a 30% increase, and earnings per share of $0.45, up from $0.35 a year ago. For the full year, revenue is projected to grow 30% to $6.1 billion, with EPS jumping from $1.25 to $1.94. Snowflake has a history of beating expectations, so the actual numbers could be even better.
However, the stock's valuation remains a concern. With a market cap exceeding $110 billion, Snowflake trades at roughly 14 times its projected 2027 revenue. Its forward price-to-earnings ratio stands at 171, far higher than other fast-growing tech names like Nvidia and AMD. The only bright spot is its Rule-of-40 score, which, based on free cash flow margin, sits at a healthy 49.7%.
Analyst targets and technical outlook
Given the lofty valuation, analysts have a cautious stance. Rosenblatt Securities recently raised its price target to $345, while Barclays, Benchmark, and Truist have targets of $332, $360, and $360, respectively. These targets suggest limited upside from current levels.
Technically, the stock is showing a bearish divergence on the Percentage Price Oscillator (PPO) and the Relative Strength Index (RSI), both of which have been declining even as the price held steady. The stock is also trading above its 50-day and 100-day exponential moving averages, which could set up a mean-reversion move lower. If the stock breaks down, the key support level to watch is $300. A move above $341 would invalidate the bearish outlook.
Investors are also keeping an eye on the broader AI trade, which has been under pressure recently. As noted in our coverage of Broadcom's options implying a 7% swing, AI-related stocks are facing increased scrutiny. Similarly, Dell shares have slipped as AI demand meets supply constraints. These dynamics could influence Snowflake's post-earnings reaction.
In the near term, the earnings report will be the catalyst. If Snowflake delivers strong results but the stock fails to rally, it could confirm the bearish divergence and trigger a selloff. Conversely, a decisive break above $341 would signal that the bulls are still in control.
This article is for informational purposes only and does not constitute financial advice.
