Snowflake (NYSE:SNOW) and Nvidia (NASDAQ:NVDA) announced today a new partnership to allow the former’s enterprise customers to build custom large language models (LLMs) using their own data.
While Snowflake seems committed to increasing its exposure to generative artificial intelligence (AI) technology, the partnership also marks a new big client for Nvidia, which continues to experience unprecedented demand for high-end GPUs.
The news also comes just a few hours after Snowflake said it had expanded its partnership with Microsoft (NASDAQ:MSFT) to enhance new product integrations with the company’s flagship new platforms – Azure OpenAI and Azure ML (machine learning).
New partnerships are announced during the “Snowflake Summit” event (Investor Day), which is taking place on Tuesday, June 27th.
Soft Results Invited More Weakness
Shares in Snowflake fell sharply in late May after the data analytics company guided down on full-year product revenue. While the company was previously looking to achieve 40% product revenue growth in 2023, the new projection calls for a 34% increase. The guide down is a result of weakening consumption activity in older cohorts that was witnessed in most of April, after seeing solid February/March months.
For its first quarter, Snowflake reported a profit per share of $0.15 on revenue of $623.6 million with the latter growing 48% year-over-year. Analysts were looking for Snowflake to report earnings per share of $0.06 on revenue of $611.3 million.
"Data has a gravitational pull, and given the vast universe of data Snowflake manages, it is no surprise that interest in data science, AI and machine learning is escalating while its uses are rapidly evolving,"
Frank Slootman, chairman and CEO of Snowflake, said in an earnings press release.
Product revenue came in at $590.1 million, growing 50% YoY as the number of customers with trailing 12-month product revenue greater than $1M rose to 373. However, shares were hit after Snowflake said it sees Q2 product revenue in the range of $620 million-$625 million, missing the expected $647 million.
Investors were also not particularly happy to hear CEO Slootman saying on the earnings call that his company continues to operate "in an unsettled demand environment.”
“While enthusiasm for Snowflake is high, enterprises are preoccupied with costs in response to their own uncertainties.”
AI From Headwind to a Tailwind?
Snowflake shares have struggled to join other tech stocks in the massive year-to-date rally fueled by the accelerating generative AI adoption. The stock has been stuck in a $120-$190 range for over 8 months now as investors are yet to perceive Snowflake as a beneficiary of the generative AI adoption. Snowflake stock is only up 24% year-to-date, versus 29% for the Nasdaq and a massive 178% for Nvidia as the company has eclipsed a $1 trillion market cap.
Some analysts raised questions about the outlook for Snowflake despite the company doing a lot of groundwork to improve its position on the AI/ML front. In the aftermath of the guide down for FY product revenue, Snowflake stock earned at least two analyst downgrades.
"Is it a Cloud-based Data Platform company that customers utilize to satisfy disparate data workloads, or is it a Cloud-based Data warehouse company in an increasingly competitive market where alternatives have now replicated the early distinguishing features that separated Snowflake?" Guggenheim analysts said in a recent note to clients.
On the other hand, Stifel analysts believe that Snowflake’s growing product set, especially AI and ML solutions, should help the company offset headwinds related to cloud optimization and deal with scrutiny given the difficult macro environment.
These concerns and comments can help explain the management’s sense of urgency on the AI/ML front. The Nvidia partnership will help Snowflake’s clients to build customized generative AI applications using their own proprietary data in an accelerated manner.
“Snowflake’s partnership with NVIDIA will bring high-performance machine learning and artificial intelligence to our vast volumes of proprietary and structured enterprise data, a new frontier to bringing unprecedented insights, predictions and prescriptions to the global world of business,” said Slootman in the press release.
Snowflake will hope that the new ability that lets users customize LLMs without moving data will help drive the faster adoptions of its cloud-focused tools. Customers are now allowed to quickly build, implement, and manage generative AI-customized applications.
“Data is essential to creating generative AI applications that understand the complex operations and unique voice of every company,” said Jensen Huang, founder and CEO of Nvidia.
The same logic also applies to the expanded partnership with Microsoft, which will allow new product integrations across AI. Under the terms of the new partnership, Snowflake also committed to increasing its Azure spending.
“Our integrations with Microsoft’s generative AI and LLM services will enable joint customers to leverage the latest AI models and frameworks, enhancing the productivity of developers,” said Chris Degnan, chief revenue officer at Snowflake.
The expanded Microsoft partnership is especially interesting given that analysts cited increasing competition from Redmond-based tech titan as one of the key overhangs on Snowflake shares in recent years.
The FY product revenue guide down “leaves us with less conviction in near and long term growth and growing competition from MSFT & Databricks creating incremental execution headwinds,” Wolfe Research analysts wrote in a downgrade note on Snowflake recently.
Hence, it comes as no surprise that Snowflake stock is reacting positively to a new partnership with Nvidia. Shares rose in premarket Tuesday trading as investors await more updates from Snowflake Summit 2023. The stock fell nearly 5% on Monday.
The company is expected to have investor and analyst sessions on topics related to AI, ML, Microsoft partnership/competition, etc. Snowflake’s management will have to provide more insights into how database vendors like itself will benefit from the explosion in LLMs.
Summary
Snowflake shares rose in pre-open Tuesday trading after the software company announced an AI-focused partnership with Nvidia, just hours after, said it has expanded its collaboration with Microsoft on Azure.
The aim of these new partnerships is to help its customers create customized generative AI applications using their own proprietary data. This way, Snowflake hopes to increase its exposure to generative AI technology and the use of AI by companies that will train their own AI models.
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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.