By Rashika Singh
Sept 3 (Reuters) - Snowflake shares surged nearly 25% on Thursday after the company raised its annual product revenue forecast, strengthening investor confidence that AI-related spending could be a powerful driver of growth for software firms.
The upbeat forecast buoyed software stocks across the board, with ServiceNow, Atlassian, Salesforce, Adobe and Intuit gaining between 3.5% and 6%, while the iShares Expanded Tech-Software Sector ETF rose 3%.
The cloud data platform provider lifted
its fiscal 2027 product revenue forecast on Wednesday to $6.07 billion from $5.84 billion and posted a 37% jump in second-quarter product revenue. Its AI offerings accounted for "approximately half of the acceleration" in growth, according to CEO Sridhar Ramaswamy.
The results, which signal AI is fueling growth in Snowflake's core platform and not just its AI products, highlights the broader benefits of rising AI investment for software companies.
"AI continues to compound our advantages, creating a flywheel effect across the business," Ramaswamy said.
Snowflake's coding assistant, Cortex Code, topped 9,100 accounts after adding more than 2,000 customers during the quarter, while enterprise chatbot CoWork expanded to 5,800 accounts.
A third straight quarter of accelerating growth amid high expectations "underscore just how well AI is monetizing and driving greater consumption in the core platform," Morgan Stanley analysts wrote.
Shares of Snowflake were last up 23.3% at $377.12, adding about $25 billion in market value and hitting their highest level since December 2021. The stock had already climbed 39% this year through Wednesday, versus a 12% gain for the S&P 500.
Snowflake is trading at roughly 15 times forward revenue, compared with 7.4 times for the broader iShares Expanded Tech-Software Sector ETF. The stock is also priced at about 121.8 times forward earnings, well above peer Datadog's 72.7 times and MongoDB's 52.1 times.
Jefferies analysts said Snowflake's premium valuation is justified by its leadership in enterprise data cloud software, with AI driving new workloads and higher platform consumption.
Following its second-quarter results, at least 34 brokerages raised their price objectives, with Wells Fargo issuing a Street-high target of $525, according to data compiled by LSEG.
(Reporting by Rashika Singh and Kanishka Ajmera in Bengaluru; Editing by Jonathan Ananda)
