Earnings Report Preview | Amid the AI boom, SNOW and CRM are expected to continue growing.

Two major SaaS giants will announce their earnings reports after the U.S. stock market today, and the market is eagerly watching their performance, as well as whether AI is driving revenue growth.

Snowflake (SNOW)

Cloud computing giant Snowflake (SNOW.US) will announce its fourth-quarter earnings on Wednesday. Wall Street analysts expect Snowflake's fourth-quarter revenue to grow by 29% YoY to $7.61 billion, with adjusted earnings per share expected to increase by 28% YoY to $0.18.

The slowdown in cloud computing growth has always been a concern for investors in Snowflake. However, cloud computing services seem to be rebounding, partly due to the drive from enterprise AI projects. Snowflake's stock price has risen by over 38% in 2023 and by more than 15% year-to-date.

TD Cowen analyst Derrick Wood stated, "Looking ahead to the fourth quarter, we expect Snowflake's performance to slightly exceed expectations (perhaps not as much as the previous quarter). Our research shows strong bulk transaction booking activity in the fourth quarter, with customers shifting their focus from cost optimization to revenue generation, and consumption trends strengthening after the end of this quarter."

Some analysts predict that the drive from new products will benefit Snowflake in 2024. RBC Capital analyst Matthew Hedberg mentioned that substantial uplift from generative AI projects may not be seen until 2025. He said, "We believe a comprehensive data strategy is the forerunner of a general AI strategy. Therefore, we believe that Snowflake is well-positioned given the vast customer data on its platform and the new generation of AI products that will help improve workload utilization. We expect that with the full launch of new products, there may be a greater substantial impact on performance in 2025 and beyond."

Snowflake's long-standing partnership with Amazon Web Services (AWS) may boost its stock price. As part of the agreement, Snowflake has committed to investing $2.5 billion on AWS over the next five years. The two companies will expand strategic initiatives through developing industry solutions, deepening product integration, enhancing sales cooperation, and expanding marketing strategies. Snowflake and AWS currently have over 6,000 shared customers, with approximately 84% of Snowflake customers running cloud workloads on AWS.

Many companies are turning to cloud computing services as part of their "digital transformation" projects. These projects aim to gain business insights by processing large amounts of data. While cloud computing giants offer their own data analysis and management tools, they allow their customers to use Snowflake's platform because Snowflake's tools perform better in some key tasks, such as compiling, viewing, analyzing, and sharing large amounts of data in a simple way. However, Snowflake is facing intensified competition. Salesforce (CRM.US) recently launched the real-time data solution Genie, which is expected to put pressure on Snowflake. The competition from AWS and Google Cloud Services remains one of investors' concerns about Snowflake. In addition, GreenLake platform from Hewlett Packard Enterprise (HPE.US) is another competitor.

Salesforce (CRM)

Salesforce (CRM.US) is set to announce its fourth-quarter earnings after the U.S. stock market closes on Wednesday. Wall Street expects Salesforce's Q4 revenue to increase by 2% YoY to $8.52 billion, with adjusted earnings per share expected to grow by 24% YoY to $2.09.

Salesforce's recent investments have been focused on enhancing its artificial intelligence capabilities to meet the growing demand in the widespread use of AI applications. The company had an impressive $1.37 billion in free cash flow at the end of the third quarter, which should help its investment activities and exploration of new opportunities. The company's proactive cost-cutting measures have begun to yield the expected results, driving profit margin growth.

Salesforce's stock price has been steadily rising in recent months, currently hovering near its historical high in 2021. With analysts' optimistic expectations, the stock seems poised to break through the $300 mark in the coming weeks, reaching new highs.

Salesforce's third-quarter performance announced at the end of November showed a 11% YoY increase in revenue to $8.72 billion, in line with expectations; adjusted earnings per share were $2.11, surpassing the analysts' average expectation of $2.06, leading to a significant stock price surge after the performance announcement.