The year 2024 got off to a flying start on the stock market. THE S&P500 is up 7%, while the technology sector Nasdaq Composite rose 6% as artificial intelligence (AI) euphoria continues to dominate.
One company that seems to have lost its momentum, however, is Snowflake (NYSE: SNOW). Shares of the database management company have fallen 21% so far this year. The reason? Concerns are growing that Snowflake is falling behind in the AI gold rush.
Let’s take a look at the current state of Snowflake and analyze why this once high-flying stock could continue to decline.
A fall from grace
In September 2020, Snowflake brought the heat following its highly anticipated initial public offering (IPO). In fact, Snowflake was the the largest software IPO of all time.
In the months following its debut on the New York Stock Exchange, Snowflake’s market capitalization soared to more than $100 billion. But after peaking at a valuation of $123 billion in late 2021, Snowflake is now worth just over $50 billion.
The competition is winning so far
Over the past year, AI has been one of the dominant themes fueling financial markets.
Many of Snowflake’s Software-as-a-Service (SaaS) peers, such as Palantir, ServiceNow, Data DogAnd MongoDB have made notable progress in the field of AI, which has led to an increase in their stocks.
That hasn’t been the case for Snowflake, which also saw a steep decline earlier this year following the abrupt departure of CEO Frank Slootman. Snowflake investors have little reason to celebrate anymore.
One of Snowflake’s main competitors is AI and machine learning startup Databricks, a private company that counts the “Magnificent Seven” among its members. Nvidia as one of its investors.
Earlier this month, Databricks CEO Ali Ghodsi denounced Snowflake in an interview with Bloomberg. Ghodsi proclaimed that Snowflake “basically doesn’t do any AI.”
Although this is just one competitor’s opinion, Ghodsi’s reasoning was interesting. He then explained that the main functionality of Snowflake’s data warehousing software is to ask questions about the past. However, he alludes to the fact that AI is intended to be a “predictive” tool.
It’s difficult to argue with Ghodsi. Although I’ve said before that I don’t see Snowflake as a direct threat to Palantir, the two companies are often compared in the enterprise software world.
2023 was a landmark year for Palantir: the company’s successful breakthroughs in AI helped drive strong growth in both revenue and bottom line.
While investors are unhappy with Snowflake, let’s evaluate some moves the company is taking and what it could mean in the long term.
The blizzard is far from over
Although Slootman’s departure was shocking, there was a silver lining. Named Snowflake Sridhar Ramaswamy as the new CEO. His previous role in the company? Senior Vice President of AI.
Ramaswamy actually joined Snowflake in May 2023 after the company acquired his AI startup Neeva. Before co-founding…
