One of the major themes at Warren Buffett’s Berkshire Hathaway (NYSE: BRK-B) shareholder meeting earlier this month was AI. While he warned of deepfakes, the billionaire also believes it could be the “growth industry of all time.”

It’s no secret the Oracle of Omaha isn’t known for his tech prowess, and he isn’t a huge fan of investing in IPOs, either. But with Snowflake Inc. (NYSE: SNOW), Berkshire dipped its toes into both the AI and new issue waters.

San Francisco-based data cloud play Snowflake comprises close to 2% of Berkshire’s portfolio today. It’s a stock that Berkshire spotted early when it poured $375 million into the Snowflake IPO at $120 per share. While it may have been Berkshire stock picker Todd Combs who spotted the opportunity, Buffett must have warmed up to the idea eventually.   

In its fiscal year 2024, Snowflake generated $2.67 billion in product revenue, a 30% year-over-year increase. Free cash flow increased 56% to $810 million. 

Right now, Snowflake is screaming bargain as one stock in Buffett’s portfolio with the biggest upside potential. Investors may be on the fence, but Wall Street isn’t, as evidenced by an average price target of $211. Based on analyst estimates on the higher end of the range at $260, there’s approximately 36% upside potential in Snowflake stock. And considering Berkshire is generating over $100 million daily these days, copying Buffett’s strategy to own Snowflake stock even in small doses seems like a pretty good idea.

Snowflake Selling

Investors haven’t been treating Snowflake much like a growth stock of late, with shares retreating 20% year-to-date. At $157, Snowflake stock is also 33% below its 52-week high, let alone its all-time high of $401 reached in 2021, at which time it was trading at nearly 100x revenue. But the pressure on the share price can likely be blamed on short-term issues that are not uncommon for a company operating in generative AI, a field where innovation never sleeps.

To be sure, Snowflake has encountered some recent challenges, not least an executive shuffle in which CEO Frank Slootman suddenly announced his retirement in early 2024, coinciding with the company’s intentional pivot toward AI. Investors tend to frown on uncertainty even though Sridhar Ramaswamy, the company’s former SVP of AI, has since taking the helm. Perhaps investors are waiting to see Snowflake’s first quarterly results under the new boss. 

Additionally, investors aren’t very forgiving of any sign of potential weakness in technology companies these days. Some of the selling in SNOW appears to have had something to do with industry peers like Palantir Technologies (NYSE: PLTR) worrying investors with less shiny quarterly results and sending the sector down in sympathy. 

AI Early Innings 

Nevertheless, generative AI has only scratched the surface, and Snowflake stock isn’t reflecting that potential right now. Google (Nasdaq: GOOG) chief Eric Schmidt in a recent interview with CNBC described AI as “underhyped,” pointing to the “arrival of intelligence of a non-human form” on the planet.  Snowflake is strategically positioned to benefit from the hype, particularly in the enterprise segment where innovation is afoot.

Snowflake recently unveiled an open-source generative AI model dubbed Arctic, pitting it up against the likes of OpenAI’s ChatGPT, Meta and Google, among others. According to Snowflake, Arctic is “the most open enterprise grade large language model (LLM)” of its kind and establishes a new standard for AI technology.  

Snowflake is also planning an upcoming data cloud summit in which Nvidia (Nasdaq: NVDA) CEO Jensen Huang will be a keynote speaker alongside Ramaswamy in a fireside chat. Given Nvidia’s rock-star status around the globe for its AI prowess, Snowflake at a minimum should benefit by association.

The event, which is scheduled for early June, will showcase the companies using Snowflake’s data foundation for AI strategies in sectors like healthcare and retail. Snowflake is hyping up the event, billing it as a watershed moment in which “a new wave of innovation” will catapult “the future of generative AI and application development forward.” 

Wall Street Watch 

Snowflake reports its fiscal 2025 Q1 results on May 22. So far this earnings season, cloud businesses for tech majors like Amazon (Nasdaq: AMZN) are booming, as businesses make the pivot to AI. Considering Snowflake’s focus on the enterprise client, this demand should be reflected in its upcoming quarterly results. Incidentally, Snowflake is also a partner of Amazon Web Services (AWS), as there is a great deal of crossover among clients for AWS and Snowflake’s database.

When compared to 2021’s lofty valuation, Snowflake’s multiples are currently much more reasonable than they were at the peak. The company continues to deliver “some of the best growth rates in software,” according to D.A. Davidson analyst Gil Luria.

One of Buffett’s gems from the recent Berkshire shareholder meeting was advice to avoid checking stock prices daily. While he might not have singled out Snowflake stock, it certainly seems to apply in this case, especially considering the stock’s 36% upside potential. 

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