It's fine to want to be like Buffett, but consider your position sizing with SNOW stock
When Berkshire Hathaway(NYSE:BRK-A, NYSE:BRK-B) CEO Warren Buffett loads up on a stock, you might be tempted to do what he does. That’s understandable, as Buffett is a legendary investor. However, there’s a red flag with Snowflake (NYSE:SNOW) that prospective shareholders must consider, so don’t over-leverage yourself on SNOW stock.
Snowflake is a cloud computing company that helps its customers, mostly business clients, store their data. As we’ll discuss in a moment, Buffett isn’t the only well-known financier with a share position in Snowflake. Nevertheless, you’ll definitely want to learn all of the relevant facts, both the good ones and the not-so-good ones, before deciding whether to invest in Snowflake.
Which Famous Investors Bought SNOW Stock?
Buffett and Citadel founder and CEOKen Griffin don’t necessarily have a lot in common, but they apparently both envision a bright future for Snowflake. Reportedly, Buffett owns a whopping 6,125,375 shares while Griffin’s firm holds 838,521 shares of SNOW stock.
The problem is, there’s no way to know for certain exactly why Buffett and Griffin bought Snowflake shares. After all, 13-F filings only reveal the what and how much, maybe the when, but never the why.
We’re all certainly free to make educated guesses, though. I suspect that Buffett and Griffin want exposure to artificial intelligence (AI) technology. HSBC (NYSE:HSBC) analyst Stephen Bersey observed Snowflake’s “global investment spend on AI.” Thus, Bersey drew a seemingly bullish conclusion:
“We see Snowflake as one of the early beneficiaries to this increase in spending as the company’s product portfolio is focused on the critical component of AI, large datasets.”
He then went on to assigned a “buy” rating and an ambitious $201 price target on SNOW stock. So now, it’s starting to make sense that financial superstars like Buffett and Griffin would want to invest in Snowflake in 2023.
Snowflake’s Slowing Revenue Growth Is a Concern
It’s actually pretty easy to build a bull case for Snowflake. Along with the AI-market exposure, investors might like Snowflake because the company has a good track record of quarterly EPS forecast beats.
Furthermore, Snowflake reported year-over-year product revenue growth of 37% in the second quarter of fiscal 2024. This might not be as impressive as it seems, though.
InvestorPlace contributor Marc Guberti caught something that I missed. Specifically, Snowflake’s aforementioned 37% revenue increase represents a “deceleration from the 48% revenue growth in FY Q1 2024, 53% revenue growth in FY Q4 2023, and 67% revenue growth in FY Q3 2023.”
That’s not a positive sign, you must admit. Moreover, I found out that there’s been some insider share selling going on. In particular, Snowflake Lead Independent Director Michael Speiser reportedly sold $89 million worth of SNOW stock shares during the past 12 months. Does Speiser know something that Buffett and Griffin don’t?
Take It Slow and Steady With SNOW Stock
I wouldn’t conclude from all of this that Snowflake is a failing business, by any means. A 37% year-over-year revenue increase is nothing to sneeze at. I only hope that Snowflake soon puts a stop to its revenue-growth deceleration.
With that red flag in mind, I recommend that prospective Snowflake investors should take it slow and steady. Scale into a position gradually by purchasing just a few shares of SNOW stock. You can always add to your stake later on, after re-evaluating Snowflake’s revenue-growth prospects.
On the date of publication, David Moadeldid not have (either directly or indirectly) any positions in the securities mentioned in this article.The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.
