We recently published a list of the 8 Best Long Term Tech Stocks To Invest In Now. In this article, we are going to take a look at where Snowflake Inc. (NYSE:SNOW) stands against the other best long term tech stocks to invest in.
The technology sector came to the market’s rescue in 2023 after the disastrous macroeconomic conditions of 2022. Investments in advanced technologies like generative AI continue to show strong potential for future business growth.
According to CNBC’s Q3 CFO Council survey, 48% of the CFOs said that the tech industry’s growth will outperform all other sectors over the next six months. Moreover, in a September 23 interview with CNBC, Investment Management Partner at Callan Family Office, RaeAnn Mitrione highlighted that the tech sector has been a major beneficiary of the recent Fed rate cut. Lower interest rates are favorable for tech companies, which often thrive in such environments.
The ongoing AI theme has also been a key driver of tech’s strong performance. Additionally, she mentioned that mega-cap tech stocks were previously seen as a safe haven during economic uncertainty, but as the rate environment shifts, the focus may broaden to include smaller, more economically sensitive sectors. Nonetheless, tech’s strong momentum, fueled by AI, is likely to persist for some time.
Optimism in Global Tech Spending for 2024
According to Deloitte’s 2024 technology industry outlook, global tech spending slowed due to high interest rates, economic concerns, and geopolitical issues in 2023. However, optimism is growing for 2024, with projected global IT spending growth of 5.7% to 8%. Some of the growth areas include software, IT services, and AI investments, with AI spending potentially reaching $200 billion by 2025. Cloud computing and cybersecurity are also expected to see strong demand.
The report states that Gen AI is gaining traction but it is expected to grow modestly in 2024, yet more strongly in 2025, with its integration into software and business processes driving productivity and efficiency. AI hardware demand is set to exceed $50 billion next year, while companies continue exploring AI monetization strategies.
Harnessing AI for Greater Energy Efficiency
Additionally, the growing influence of big tech companies and the increasing reliance on AI have led to a significant rise in energy demand. We discussed this in our article about the 13 Best Big Tech Stocks To Buy Now. Here is an excerpt from the article:
“A recent notable trend that people have begun to see because of the rise of big tech companies and the growing use of AI is a greater demand for power. Many major tech companies are beginning to require more energy, with the AWS-owner going as far as buying a nuclear-powered data center for $650 million recently.
The primary driving force for this rising demand is the need to develop AI. Many energy-conscious investors may see this new trend as a red flag for big tech. However, Jensen Huang has noted that while AI takes a ton of energy to train, once developed and trained, it will also help save energy. He particularly noted that AI is going to become so advanced through this development that it will eventually end up offering solutions that can change the way we use energy, making our operations endlessly more energy efficient.”
While concerns about the electricity needed to power AI are justified, according to industry pioneers like Nvidia CEO Jensen Huang, the technology itself will help solve that problem.
Our Methodology
For this article, we used the Finviz stock screener to identify 27 tech stocks with market caps of above $10 billion, Buy or Buy-equivalent ratings from analysts, and over 20% average price target upside. We narrowed our list to 8 stocks with the highest average analyst price target upside as of September 26. The best long term tech stocks are listed in ascending order of their average analyst price target upside.
We also mentioned the hedge fund sentiment around each stock which was taken from Insider Monkey’s database of over 900 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Is Snowflake Inc. (NYSE:SNOW) the Best Long Term Tech Stock To Invest In Now?
Snowflake Inc. (NYSE:SNOW)
Average Analyst Price Target Upside: 51.12%
Number of Hedge Fund Holders: 69
One of the best long term tech stocks, Snowflake Inc. (NYSE:SNOW) offers a cloud-based data platform that has revolutionized how organizations handle and analyze data. With its advanced data warehousing solutions, it allows businesses to efficiently store, manage, and share vast amounts of information in real time.
The core of the company’s offering is its cloud data platform, which features a unique architecture that separates storage from computing resources. The design allows customers to adjust their resource allocation independently, which helps avoid the hefty hardware investments typically associated with traditional data management systems.
The range of services provided by the company includes data integration, sharing, and advanced analytics, which serve a wide variety of industries such as healthcare, finance, and retail.
As businesses increasingly rely on data to drive decision-making, it is well-positioned to capitalize on this growing demand. The stock has a consensus Buy rating from 46 analysts and the average price target of $170.00 has an upside of 51.12% from the current levels, as of September 26.
The surge in AI usage further amplifies the need for robust data solutions, and the company’s infrastructure is crucial for supporting these AI workloads. To enhance its capabilities, it has invested in graphics processing units (GPUs), which are important for managing the heavy computational demands of AI.
While these investments have impacted profit margins due to the high costs associated with GPUs, the company’s leadership is focused on ensuring that spending aligns with revenue growth.
At a recent conference, CFO Mike Scarpelli indicated a careful approach to future GPU purchases, emphasizing the importance of revenue to support such investments. He said, “I’m not going to buy any more GPUs until I see the revenue to support it.”
His comments signal a focus on balancing growth with profitability, which can ultimately benefit shareholders. The long-term outlook for Snowflake (NYSE:SNOW) is incredibly promising, as management estimates its addressable market was valued at $153 billion last year, with projections indicating it could reach $342 billion by 2028.
Baron Fifth Avenue Growth Fund stated the following regarding Snowflake Inc. (NYSE:SNOW) in its Q2 2024 investor letter:
“Snowflake Inc. (NYSE:SNOW) is a leading cloud data platform that is predominantly used for data analytics. The stock declined 16.4% as investors evaluated the impact of a recently announced CEO transition, an investment cycle driven by spend on AI, a cybersecurity incident, and a rapidly changing competitive environment. With GenAI capturing a larger portion of the public discourse, Snowflake’s positioning in the future data stack is under scrutiny by both investors and customers. We believe Sridhar Ramaswamy, the newly appointed CEO, can help the business more efficiently transition toward an AI-first world. While Databricks and other key competitors are presenting strong results, we believe Snowflake’s brand, existing customer base, and accelerating product innovation should allow it to continue to capture share in a relatively large and strategic market. Management continues to describe strong demand trends for its core data analytics, which is also demonstrated by the relatively healthy expansion rates among existing customers while new go-to-market initiatives can help grow the customer base further. Longer term, we remain excited about the Snowflake’s strategic opportunity as the data platform for its customers.”
Overall, SNOW ranks 2nd on our list of the best long term tech stocks to invest in. While we acknowledge the potential of SNOW as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SNOW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.