Morgan Stanley: Snowflake (SNOW.US) accelerates its growth engine with five major flywheels in AI+ data engineering, leveraging a $300 billion market.

Morgan Stanley recently released a research report supporting Snowflake (SNOW.US), stating that artificial intelligence will open up long-term growth paths for its core business, and the company's expansion into the data engineering and artificial intelligence market provides a way for it to achieve a compound annual growth rate (CAGR) of over 20% by 2030. The firm initiated coverage on the stock with an overweight rating and a target price of $262. More precise execution positioning helps seize huge opportunities Under the leadership of CEO Sri Shridar Rajagopalan, who took office in February 2024, Snowflake's long-term growth prospects have improved. During his tenure, Snowflake has become a more efficiently executing organization in sales, marketing, and product engineering, leading to a stable 20%+ growth in product revenue. In addition, Snowflake has significantly accelerated its product innovation in four major opportunity areas: 1) core cloud data warehouse, 2) data engineering, 3) artificial intelligence/machine learning platform, and 4) applications and collaboration. Although its presence in the artificial intelligence/machine learning and application markets is still in the early stages, prioritizing the integration of AI innovation into its core business and modernizing customer data infrastructure as a necessary step for executing its AI plan has led to stabilization in its core data warehouse business. Meanwhile, rapid execution of the product roadmap and changes in pricing and packaging have driven data engineering revenue run rate to over $200 million. In addition to the improvement in execution capabilities, the firm believes Snowflake has found its positioning and has crafted a strategy to successfully capitalize on the $300 billion market opportunity: enabling customers to easily apply AI to both their structured and unstructured data on a user-friendly, highly secure, and managed platform. Morgan Stanley believes a more focused, efficiently executing organization has the potential to achieve sustained growth of over 20% and continuous expansion of operating profit margins, hence the overweight rating initiation with a target price of $262. Stock still has room to rise, with five key drivers catalyzing growth Snowflake's stock price has risen by 37% in the past year, outpacing software stocks in the market (excluding Palantir), which have risen by 9% during the same period. While investor sentiment has become more positive than a few months ago, discussions on the company's AI positioning remain intense. The firm's outlook on Snowflake's long-term growth prospects and execution capabilities has improved, and it believes several catalysts will drive an upward cycle in future quarterly expectations. 1. Core data warehouse business will remain healthy The firm believes that in uncertain environments, the demand for analytics is becoming more urgent. Snowflake is one of the only two suppliers of the top 10 data warehouse vendors in 2024 to see market share growth, a trend expected to continue through 2025 and beyond. Chief Information Officer (CIO) surveys conducted by the firm show increased adoption of cloud data warehouses (CDW) and Snowflake's market share, with positive feedback from partners on cloud migration despite changing conditions. The firm believes current estimates are conservative, indicating modest growth of 4%-8% in data warehouse annual revenue over the next few years or flat net new data warehouse revenue. 2. Data engineering poised to become a larger growth contributor As mentioned earlier, Snowflake's data engineering product suite (Snowpark, DYNAM JAPANicTables, Snowpipe Streaming, Connectors, Iceberg) crossed a revenue run rate of over $200 million in the fourth quarter. Looking ahead, Python package downloads data show an accelerated adoption rate, instilling confidence in the firm's projections for data engineering contribution growth. The firm predicts data engineering revenue in FY2026 is expected to grow from $204 million in FY2025 to $367 million, with a YoY growth rate of 80%. 3. Artificial intelligence product suite expected to contribute in FY2027 and beyond Research and alternative data (such as Alphabet Inc. Class C trends and recruitment mentions) indicate improved competitiveness in artificial intelligence, with a turning point appearing in the second half of the previous year, mirroring Claude's landing time at Snowflake, a significant turning point in the firm's research. Large customers have already begun to carry out millions-scale AI workloads on Snowflake, validating the alignment of the product with the market and boosting confidence in the business. Snowflake is expected to achieve its $1 billion AI revenue goal next year, with significant contributions expected in FY2027 and beyond. 4. Strong growth in new customers supports medium-term sustained sales From the first quarter of 2022 to the first quarter of 2025, Snowflake's customer base grew at a CAGR of 23% (ranking third among the infrastructure software covered by the firm), with an 18% growth in 2024 and an accelerated growth of 22% in the first quarter of 2025 (second only to Palantir). Although new Snowflake customers typically take 6-9 months to start ramping, sales usually see significant growth in the following 12-15 months. Due to recent strong performance in acquiring new customers, the firm expects this customer base to make significant contributions starting in FY2027, providing another upward drive from current market expectations. 5. Newly appointed Chief Revenue Officer activates partner ecosystem The newly appointed Chief Revenue Officer Mike Gannon (former VMware executive) has emphasized improving relations with major cloud service providers (including the highly competitive Alphabet Inc. Class C cloud). The company also pointed out that three out of the five major global systems integrators (SI) have committed to building $1 billion business lines around Snowflake. One of Mike Gannon's key focuses, and historically a weak spot for the company, is improving relationships with resellers to better expand the marketing organization. Recent communications with major partners such as Ernst & Young confirm that Snowflake's interaction with partners is becoming closer and more friendly. While it takes time to build a partner ecosystem, a successfully established collaborative front-end system is expected to directly drive accelerated product revenue growth in the coming years.