Why Citigroup Still Likes Snowflake but Expects More From This Tech Stock

Tech stocks have been some of the most beaten up over the past couple of quarters. After the bounce in July, analysts are thinking now is the time to jump in. One major Wall Street brokerage firm is betting big on a couple tech stocks and thinks they could be offering stable upside.

Citigroup has issued a couple calls with a focus on tech stocks, specifically cloud and IT Services. Each of the calls are fairly positive, with upside up to 24%.

It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Snowflake

Citigroup reiterated a Buy rating on Snowflake Inc. (NYSE: SNOW). Its $175 price target implies upside of 3% from the most recent closing price of $170.44.

Tyler Radke was the lead analyst on the call and he noted in the report that he remains a believer in Snowflake’s long-term growth story, including management’s $10 billion or more product revenue targets, but he is becoming “tactically cautious” and opens a negative Catalyst Watch ahead of earnings due next week.

Following the recent 30% run in the stock, Radke sees usage headwinds continuing to build and views consensus numbers for the third quarter and fiscal 2024 as “too high,” with intra-quarter checks remaining somewhat mixed, fewer signs of new workloads in the second half in response of Graviton2 price cuts and a slowdown in cloud and IT spending. While his estimates are below the street for the third quarter fiscal 2023 and fiscal 2024 by 3% to 5%, respectively, his price target reflects a steady path forward.

The stock traded at around $167 on Wednesday, in a 52-week range of $110.26 to $405.00. Shares are down 51% year to date.

Thoughtworks

On Thoughtworks Holding Inc. (NASDAQ: TWKS), Citigroup reiterated a Buy rating but lowered the price target to $19 from $24. That still implies upside of 24% from the most recent closing price of $15.27.

Ashwin Shirvaikar made the call after the company beat the second quarter forecast, gave below-consensus third-quarter guidance and left its fiscal 2022 constant currency growth outlook unchanged. The lower-than-expected third-quarter outlook is due to funding constraints at some tech clients, some client ramps delayed to the fourth quarter and lower utilization. Although the full-year outlook assumes most of these events are one-time in nature with a quick return to normal in the fourth quarter, it is likely to lead to some investor concerns around visibility.

The stock has a 52-week trading range of $12.99 to $34.43, and shares traded near $14 apiece on Wednesday. The stock is down over 45% year to date.

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