Morgan Stanley upgrades this AI play, says stock can jump more than 20%

Morgan Stanley upgraded Snowflake (SNOW) to Overweight from Equal Weight, raising its price target to $262, citing improved AI growth prospects under new CEO Sridhar Ramaswamy. Analyst Sanjit Singh highlighted AI's role in stabilizing the core data warehousing business and projects a 20% compound annual growth rate through 2030, with a target of $100 million in AI run rate by year-end. This upgrade, reflecting over 22% upside, signals increased confidence in Snowflake's ability to capitalize on AI initiatives, driving a nearly 2% premarket stock increase.

Analysis

Morgan Stanley has upgraded Snowflake (SNOW) to Overweight, increasing its price target to $262, which suggests over 22% upside from the prior day's close. The upgrade is predicated on improving secular growth prospects driven by artificial intelligence initiatives under the new leadership of CEO Sridhar Ramaswamy. The bank's analysis indicates that AI innovation is stabilizing Snowflake's core data warehousing business, as customers increasingly prioritize modernizing their data infrastructure. Morgan Stanley projects a compound annual growth rate of at least 20% through 2030, supported by market expansion into data engineering and AI. Confidence in this outlook is reinforced by the identification of large customers with potential six-figure AI workloads, leading to the expectation that Snowflake can achieve its target of a ~$100 million AI run rate by year-end. This bullish view from a major bank adds to an already positive consensus, with 40 of 50 analysts rating the stock a buy or strong buy, although Morgan Stanley's target is notably higher than the ~$229 average. The stock, already up over 38% year-to-date, responded with a nearly 2% gain in premarket trading.

Key Decisions for Investors

• The Morgan Stanley upgrade provides a significant validation of Snowflake's AI strategy, suggesting investors re-evaluate the company's long-term growth trajectory beyond its core data warehousing business.
• Investors should closely monitor the company's execution towards its stated target of a ~$100 million AI run rate by year-end, as achieving this would serve as a critical proof point for the new investment thesis.
• Given the stock's 38% year-to-date appreciation, consider the valuation context and weigh Morgan Stanley's aggressive $262 price target against the more moderate analyst consensus of ~$229 when assessing potential entry points or adjusting position sizes.