What has already been a crazy year for tech stocks just got a little crazier with the initial public offering of Snowflake Inc (NYSE:SNOW) recently becoming the largest software IPO of all time. Snowflake stock doubled its value in the span of a day after it hit markets.
It appears that, as is usually the case with tech IPOs, Snowflake stock is now in for a bit of correction (with the potential for it to be a severe one). But I’m not here to tell you about SNOW stock specifically. Instead, I’d rather focus on what the Snowflake IPO is telling us about the market at large.
About Snowflake Stock
First, the important stuff: what does Snowflake Inc do?
The company is a cloud-based data analytics and storage company. Which is to say that it keeps and provides insights on company data to help businesses make informed decisions.
Data mining and analytics, more broadly, have boomed in recent years. After all, for decades, companies had these treasure troves of information that were just lying there, untapped. With computing power increasing and data science emerging as a field of intense interest to many businesses, this stored information is now considered one of the most highly coveted assets a company can have.
Think about Facebook, Inc. (NASDAQ:FB)—and pretty much any other social media company—and Alphabet Inc (NASDAQ:GOOGL); both companies are so highly valued, primarily because they have so much data about consumers. Data that companies can then use for targeted advertising and campaigns.
The wealth of data that these companies hold, of course, is also why so many people distrust them, but that’s an issue for another article.
Snowflake stock, then, hopes to profit from the need for companies to have this data stored in a safe and accessible spot. The fact that Snowflake Inc also provides analytics services is the cherry on top. Add into the mix that it’s cloud-based, and you have a company that is practically tailor-made to take advantage of the current tech stock market.
And that brings us to the Snowflake IPO, which, as mentioned earlier, is the largest software IPO to date.
The company hit markets trading at $120.00, but quickly soared to about $270.00, before tapering off and declining some.
The company’s market cap hit roughly $64.0 billion by Friday morning, over five times its original valuation of $12.4 billion.
For those of you who have followed my writing on tech IPOs over the years, we know this is nothing new. Heck, we’d be downright surprised at this point if a hot, new tech IPO didn’t double its value in a day.
And, as is usually the case, we’re likely to see some volatility with SNOW stock. For those looking to make a play on Snowflake stock, it might be wise to consider investing sooner rather than later, as I anticipate a few more steep gains, followed by an eventual correction. (Not that this is a stock recommendation; it is not.)
Whether that correction takes place a week down the line or six months down the line is hard to judge, but we’ll be sure to keep an eye on SNOW stock in the coming weeks and months.
The Message in the Snowflake IPO
But there’s something very important that the Snowflake IPO is telling us about the tech stock market: it’s still hot as ever.
Consider that Warren Buffett’s company Berkshire Hathaway Inc. (NYSE:BRK) surged by about $800.0 million after the initial Snowflake stock surge. (Source: “Warren Buffett’s Berkshire Hathaway made $800 million on Snowflake’s first day of trading as the stock spiked,” Business Insider, September 17, 2020.)
But there’s more to this than just a billionaire making more millions—Buffett is famous for his often conservative positions. In fact, his investment in the Snowflake IPO is the first time he’s invested in a newly public U.S. firm since Ford Motor Company (NYSE:F) went public in 1956.
In fact, Buffett has gone on record in the past blasting tech IPOs due to their absurd fluctuations once they hit markets, not trusting in their long-term outlook. And, in many cases, Buffett has been proven right (or, in many other cases, wrong).
But what this tells us is that the investment guru believes in Snowflake stock, at least for now (a good sign from the famously assiduous investor).
What’s more, it also shows that Snowflake stock may signal a whole new slate of companies emerging in the data analytics space.
While many of the larger tech companies offer some of these services as well, more specialized tech companies could develop in the near future, building on the momentum generated by the Snowflake IPO.
It’s also worth mentioning that the Snowflake IPO wasn’t exactly friendly to investors like you and me; much of the gains went to institutional investors who were given the option to buy early, demonstrative of a not-exactly-fair “free” market. But that’s a problem that will hopefully remain singular to this particular tech stock, if more of these data analytics companies go public in the near future.
Finally, Snowflake stock is at risk of a future collapse should it not be able to make money. Right now, SNOW stock runs with a lot of burn, but that’s pretty much the industry standard for new tech companies. So, nothing to worry about…yet.
If, on the other hand, it continues to leak cash at an alarming rate with no concrete avenue towards profitability, then anticipate a pretty steep decline for Snowflake stock.
Tech stocks continue to run hot even as the pandemic rages on, showing us that this is, in fact, one of the safest markets in which to store your money right now. After all, many of these companies have outlooks that show huge gains in the next few years. COVID-19, for all the damage it has wrought, is expected to be gone by then. Planning for the world after the pandemic is a smart way to make a long-term investment that will pay off with big dividends.
Tech stocks, as a result, remain on the top of that list. Tech stocks in emergent markets, like Snowflake stock and others of its ilk, are going to be especially valuable moving forward.
Whether or not you want to take a chance on this particular company after the Snowflake IPO pop is up to you, but I assure you that there will be many more opportunities in the near future to see some serious gains on these kinds of valuable tech stocks.