Shares of Snowflake (SNOW 0.15%) have stumbled recently despite convincing beats on both the top and bottom lines in the data analytics and management company’s latest quarterly results. That, however, might make the stock a bargain, particularly given that the company is diving head-first into artificial intelligence (AI). Its recent pivot into the red-hot tech segment is already having an effect on its fundamentals and could be a significant driver going forward.

AI-curious customers

Snowflake reported its second quarter of fiscal 2024 results toward the end of August. These revealed that even if the company isn’t posting the sky-high growth numbers of recent periods, it’s still managing to improve key line items well in the double-digit range.

For example, total revenue for the specialty tech company grew by 36% year over year to $674 million on the back of a 37% rise in its all-important product revenue. More encouragingly, Snowflake’s count of clients with trailing-12-month product revenue topping $1 million saw a very dramatic 62% increase to 402.

This not only indicates that such customers are “sticky,” but they’re also consuming more (the company operates on a usage-based model).

The bottom line also improved, and how. Non-GAAP (adjusted) net income ballooned to over $80 million ($0.22 per share) from $4.6 million in the same period a year ago. 

Both headline numbers easily topped analyst expectations. On average, prognosticators following the stock were anticipating slightly over $662 million on the top line and only $0.10 per share for adjusted net income.

Snowflake only pivoted to an AI-focused business model several months ago, so investors shouldn’t expect monster returns from the technology just yet. It is firmly in the minds of many Snowflake customers, according to management, and is already helping to keep them engaged — and spending on the company’s solutions.

In the conference call discussing those second-quarter earnings, CEO Frank Slootman said bluntly that “Generative AI is at the forefront of customer conversations.”

“However, enterprises are also realizing that they cannot have an AI strategy without a data strategy to base it on,” he added. “We have a head start in this race as the epicenter of highly curated, optimized, and trusted enterprise data.”

But again, AI won’t be the rocket fuel suddenly giving Snowflake’s fundamentals a liftoff. The company proffered product revenue guidance for its current (third) quarter of $670 million to $675 million, which would shake out into a maximum year-over-year growth of 29%.

That’s well below the trailing quarter’s 37%, of course (hence one reason the stock sold off post-earnings), but we should keep in mind that Snowflake has a history of topping its own guidance.

A dream team?

If you’re a business that wants to leap ahead with AI, it’s wise to partner up with one of the top AI enterprises on the scene. 

Sure enough, in late June, at the company’s Snowflake Summit, Snowflake and Nvidia announced a new partnership. The latter company’s NeMo platform, which is used to develop large language model (LLM) AI functionalities, will be made available for Snowflake users. 

Giving a business the power to harness its own data for AI training is a very strong lure. As AI catches on and more businesses jump on the train, we can fully expect Snowflake to benefit from the trend. AI is already starting to barrel down the tracks; the company looks set to go on one heck of a ride with it.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Snowflake. The Motley Fool has a disclosure policy.

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