Last week was an exceptional one for my Stocks and Shares ISA. Thanks to a 40%+ gain from Snowflake (NYSE: SNOW), the value of my portfolio surged.
Here, I’ll look at what happened with Snowflake. I’ll also highlight a stock in my portfolio I think has the potential to experience a similar kind of surge.
The market got it wrong
Earlier this year, Snowflake stock fell amid the software sell-off. A lot of investors seemed to think it would be disrupted by artificial intelligence (AI).
I always believed that the market had it wrong though. Snowflake’s a data and analytics company that helps businesses get their data structured so that it can be used for AI, so my view was that it would actually benefit from the technology.
Here’s what I wrote back in February: “My belief is that this company – which has been growing at a prolific rate – will continue to have success in the AI era. Because it’s focusing on the one thing AI can’t operate without – data.”
At the time, it was trading near $170. Today however, it’s at $260.
Strong AI growth
As to why it’s suddenly rocketed, that’s because the company’s showing that AI is boosting demand for its services. Last week, it posted its quarterly results and they were fantastic.
For the period, product revenue was up 34% year on year to $1.33bn. Meanwhile non-GAAP operating income was up 80% to $166,000.
Encouragingly, net revenue retention rate was 126%, which shows that customers are spending more. Note that it now has almost 800 customers spending $1m a year on its platform.
On the back of these earnings, the company raised its full-year guidance. This led Wall Street analysts to raise their price targets for the stock with many going to $300+ (I’ll be waiting for a pullback before buying more shares).
Could this stock be about to surge?
Now, I think we’ll see more of this kind of activity in the months ahead. I expect plenty of software businesses to show that they’re actually benefitting from AI.
One stock that looks interesting to me today is Salesforce (NYSE: CRM). This is another name that has tanked due to AI disruption fears.
But here’s the thing – Salesforce is rapidly becoming a data and AI company. Not only has it acquired a bunch of data businesses (eg Informatica) in recent years but it has also launched its own agentic AI solutions, Agentforce.
This data and AI side of the business is starting to generate material revenues. In its most recent earnings, it reported Agentforce and Data 360 annual recurring revenue (ARR) of nearly $3.4bn (total revenue is expected to be around $46bn this year).
Now, Salesforce shares have started to move higher recently. But they still look very cheap. At present, the price-to-earnings (P/E) ratio is around 14. That’s low for a software company.
Of course, there are plenty of risks around AI disruption – we may see more businesses try to create their own CRM software in the future. There are also risks around pricing – the company will probably need to shift from a per-seat model to an AI token model.
Given the low P/E ratio however, I think this stock’s worth a look. I wouldn’t be surprised to see the share price move higher in the months ahead.
Should you invest £5,000 in Salesforce right now?
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Edward Sheldon owns shares in Snowflake and Salesforce
