Cloud stocks are rising today following a very positive earnings report from Snowflake (NYSE:SNOW). The cloud computing company has reversed the downward trajectory that carried it through most of August, surging after reporting positive revenue and sales growth. It closed up 23% for the day, taking it to gains of more than 50% for the month.
SNOW is a unique stock in the sense Warren Buffett made a bet on its during its highly successful initial public offering, or IPO. Buffett is famously weary of IPOs. The company still counts him as a shareholder and as InvestorPlace contributor Joel Baglole reports, its customer base is growing at a “brisk pace.”
Baglole also notes that according to the company, “its customers increased their spending on its products and services by 74% in the first quarter from a year earlier, which is a very high rate among cloud computing firms.” Snowflake’s recent earnings report has given investors plenty of reasons to be optimistic about its future. But does that mean all cloud stocks will see the same type of growth? Let’s take a look at the bigger picture.
What’s Happening with Cloud Stocks
Data from Refinitiv indicates Snowflake reported second-quarter revenue of $497 million, beating analyst predictions of $467 million. Product revenue accounted for the largest portion of sales for Snowflake. This quarter, it reached $466.3 million, demonstrating a year-over-year (YOY) increase of 83%. CNBC reports Snowflake expects this figure to continue rising, predicting $500 million and $505 million in Q3 and between $1.91 billion and $1.92 billion for the full year.
When a company beats expectations on important top-line estimates, it can be expected to trigger a rally that moves its peers. Several other cloud stocks have been rising all day on Snowflake’s momentum. Today, MongoDB (NASDAQ:MDB) was up almost 7.5% while Datadog (NASDAQ:DDOG) was up more than 4%. Sector leader Oracle (NYSE:ORCL) saw some turbulence today, but rebounded to end the day up about 1%.
That said, a quick look at the cloud computing sector reveals it has been a difficult year. Snowflake has shed 26% of its value over the past six months and Datadog has dropped 32%. MongoDB has been rising recently, but it is down for the six-month period by 5% while Oracle is up 1% over the same time.
None of this surprising when we factor in the recent bear market and Federal Reserve rate hikes that pushed tech stocks down across the board. But is important for investors to recognize these trends are finally easing.
What Comes Next
Snowflake’s Q2 earnings report should signal something important to investors: Cloud stocks are slowly but surely shaking off the macroeconomic headwinds that pushed them down in early 2022. Demand for cloud computing isn’t going anywhere. According to data from Facts and Factors, the industry is expected to grow to $1.03 trillion by 2028 at a compound annual growth rate (CAGR) of about 15.8%.
If those projections are accurate, cloud stocks like Snowflake can be expected to keep growing throughout 2023 and beyond. Inflationary trends are slowly lifting and as they do, tech stocks that previously struggled will keep rising. Snowflake’s indicators are a good preview of what is coming.
On the date of publication, Samuel O’Brient did 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.com Publishing Guidelines.