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BTIG’s Gray Powell downgrades Snowflake (NYSE:SNOW) to a “Neutral” rating from “Buy” and removes its price target on the stock (previously $158), citing falling “ground checks” and ” the potential for slower product revenue growth in the coming quarters.”
In what the analyst calls “a tough call, as the long-term growth opportunity ahead of SNOW remains very compelling”, he nevertheless lowered his expectations of the cloud computing company following several macro trends. negative:
1. “Sequential trends among hyperscale cloud IaaS providers slowed in the second quarter, which we believe is a negative reading for SNOW.”
2. Audits show that the company’s customers are increasingly concerned about the economic downturn: “(customers’) spending intentions with SNOW remained strong, but returns weren’t as good as there have been 6-12 months as customers become increasingly concerned about the weakening economic environment.”
3. The analyst cites a conversation with “two large customers who are looking to shift some of their consumption from SNOW to Databricks (private) to help contain rising SNOW costs.”
Adding to the last point, BTIG notes that “this is probably an early stage trend”, but one that can become a considerable risk factor.
Overall, the analyst sees the above as a “notable” change in the macro environment “compared to 6-12 months ago”, and urges to be “more careful about the name”.
Shares of SNOW are trading down almost 5% pre-market, adding to a loss of more than 54% since the start of the year. That compares to just a 14% year-to-date loss for the S&P 500 index.
By Vlad Schepkov