WARREN'S WINTER WONDERLAND
(SNOW), (BRK-B), (AMZN), (MSFT), (GOOGL), (NVDA), (META)
Picture this: The investment legend Warren Buffett and the futuristic realm of Artificial Intelligence (AI).
These two domains may seem as disparate as chalk and cheese, but delve deeper and you'll find that Buffett's investment giant, Berkshire Hathaway (BRK-B), has made a strategic leap into the AI arena with Snowflake. And while it might represent a mere 0.3% of the Berkshire portfolio, the ripples it sends are seismic.
It was back in 2020 when Berkshire Hathaway took the plunge into Snowflake's realm. This wasn't the first time Buffett had shown interest in the tech sector. Only a year prior, Amazon (AMZN) had caught his eye.
That being said, I can clearly see a pattern here, a shift in strategy, a foundation being laid. The force of cloud computing and AI is undeniable, and it seems Berkshire Hathaway is gearing up to ride this wave.
Snowflake's current trading position might raise eyebrows, especially given the 50% dip from its previous highs. But here's my take: the AI market's dynamics have been swayed by Big Tech's gravitational pull.
Giants like Nvidia (NVDA), Alphabet (GOOGL), Microsoft (MSFT), Amazon, and Meta (META) have hogged the limelight, leaving Snowflake in the shadows. Buffett, throughout his illustrious career, has demonstrated the acumen of a contrarian. Snowflake's current position seems ripe for such an approach.
What makes Snowflake tick? It's their unparalleled prowess in data management. In the world of AI, data is the lifeblood. But data doesn't always come neatly packaged. This is where Snowflake shines.
The company offers streamlined solutions for data collection, storage, and processing. Their ability to optimize data storage allows clients to economize on cloud computing expenses. Moreover, Snowflake’s platform provides an avenue for clients to monetize their data, a boon for AI developers seeking precision in training their models.
Given its 2012 inception, Snowflake is relatively young in the tech space. Despite this, its emphasis on scaling and establishing a robust foundation in its niche offerings is commendable. The future of AI hinges on data, and Snowflake, with its expertise in data warehousing and analytics, is poised to play a pivotal role.
But it's not all sunshine and rainbows for Snowflake. Recent reports indicate a revenue growth slowdown, which is a tad concerning given the company's size and ambitions.
Add to this the fact that Snowflake hasn't yet turned a profit, and you see the challenge. High employee stock compensations have kept profitability at bay. Investors, including the likes of Berkshire Hathaway, will be keenly watching Snowflake's next moves toward profitability.
With its current valuation hovering around 20 times sales, Snowflake is far from a bargain buy. However, here's the twist: as we stand on the verge of an AI revolution and with IT budgets poised to swell, Snowflake's proposition becomes tantalizing.
Still, I'd recommend treading with caution. A modest stake in Snowflake seems prudent – enough to ride the gains, but insulated from potential pitfalls.
At this point, the company stands as a beacon in the realm of “Data Super Cloud.” Current share prices hover around the $153 mark, leading to a market capitalization of roughly $50.37 billion. Factoring in the $4.85 billion cash cushion from recent financial disclosures, Snowflake's enterprise value touches $45.52 billion.
Fast forward to FY25, and projections peg Snowflake's revenue at an impressive $3.59 billion, marking a 30% year-on-year growth. This translates to a valuation multiple of 12.7x EV/FY25 revenue. While Snowflake's valuation might seem steep, its robust growth trajectory and appealing margin profile suggest there's room to grow.
The Snowflake saga is one of patience. The stage is set, the actors are in place, and as the narrative unfolds, those poised to capitalize on the rebound stand to gain.
In Buffett's world, where tradition meets innovation, Snowflake's story is just beginning.
