Why Snowflake (SNOW) Shares Are Sliding Today

Kayode Omotosho /
2024/02/20 11:31 am EST

What Happened:

Shares of data warehouse-as-a-service Snowflake (NYSE:SNOW) fell 5.3% in the morning session after equities pulled back, with market participants likely taking profits ahead of a big earnings week. Tech stocks led the decline, with the Nasdaq index down 1% while the SP 500 fell 0.5%. Some of the notable stocks reporting earnings during the week include Walmart (NYSE:WMT), Booking Holdings (NASDAQ:BKNG), and Nvidia (NASDAQ:NVDA). 

Stocks have had a good run since the fourth quarter of 2023 as markets expect the Fed to begin cutting rates as early as the first half of 2024 amidst cooling inflation data. The market's momentum continued into the early weeks of 2024 following solid earnings results from big tech names, including Meta (NASDAQ:META), Amazon (NASDAQ:AMZN), and Microsoft (NASDAQ:MSFT). 

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Snowflake? Access our full analysis report here, it's free.

What is the market telling us:

Snowflake's shares are very volatile and over the last year have had 25 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The previous big move we wrote about was 11 days ago, when the company gained 5.3% after the Bureau of Labor Statistics provided a revised inflation reading for December 2023, which came in lower than expected (+0.2% m/m versus the prior reading of +0.3%). This further supports the narrative that inflation is cooling, likely giving the Fed more reasons to start cutting rates in 2024. 

Also, stocks continued to rally as the Nasdaq rose 1.2% and the S&P 500 gained 0.57% to end another strong week of earnings with positive results from most of the big tech stocks that reported so far this season. Notably, Meta reported strong top and bottom-line beats, hinting at a potential rebound for the advertising sector in 2024. Cloudflare also reported solid earnings with guidance for sustained growth momentum in 2024, further boosting the market's optimism toward software stocks, especially those with cloud and AI capabilities. In addition, 

Overall, it was also a strong week for equities, with the S&P 500 breaking past the 5,000 level for the first time as the market continued to maintain the strong momentum from the last quarter of 2023. 

Snowflake is up 15.6% since the beginning of the year, and at $218.61 per share it is trading close to its 52-week high of $236 from February 2024. Investors who bought $1,000 worth of Snowflake's shares at the IPO in September 2020 would now be looking at an investment worth $860.79.

Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.