Move over Nvidia: here’s my new favourite AI stock

Nvidia is an artificial intelligence (AI) stock I’m bullish on. Today, it’s one of my largest portfolio holdings.

But it’s not my favourite AI stock right now. With its market-cap sitting at a whopping $4.3trn, I see far more investment potential in a smaller technology company that’s not getting nearly as much attention.

My top AI stock right now

The stock I’m really excited about is Snowflake (NYSE: SNOW). It’s a data storage and analytics company that helps companies deploy AI and serves about 750 of the Forbes Global 2000 businesses.

Listed on the New York Stock Exchange, it currently has a market-cap of $80bn. So it’s far smaller than Nvidia and many other tech stocks.

Now, I listed this as my top US stock to consider buying for 2025 and it has done well, rising about 50% year to date. I think it’s just getting started however. In my view, there’s potential for significant gains from here.

Why I’m bullish

Why am I so bullish on Snowflake? There are a few reasons. One is that the company’s clearly benefitting from the growth of the AI industry.

For the quarter ended 31 July, product revenue came in at $1.09bn, up 32% year on year. This was an acceleration of growth relative to the previous quarter where growth was 26%, suggesting that interest in the company’s AI solutions is increasing. Net revenue retention rate for the quarter was 125%, signalling that existing customers are spending more money with the company.

It’s worth noting here that if a business wants to deploy AI, the first step is to get its data structured properly. This is what Snowflake specialises in, and it explains the high level of growth being generated at present.

Another reason I’m bullish is that the company has a brilliant CEO in Sridhar Ramaswamy. Since he came on board last year, product revenue growth has been on fire.

“Thousands of customers are betting their business on Snowflake and more than 6,100 accounts are using Snowflake’s AI every week. We have an enormous opportunity ahead as we continue to empower every enterprise to achieve its full potential through data and AI.”
Snowflake CEO Sridhar Ramaswamy

I also like broker activity here. Since the company posted its most recent earnings on 27 August, a lot of analysts have increased their price targets for the stock with many going to between $270 and $300.

Finally, the market-cap’s still quite small (relative to many other tech names). If the company can continue growing its revenue at 20-30% a year, I see no reason why the stock can’t double or triple in the years ahead.

Worth a look

Now, there’s no guarantee that revenue will continue growing at 20%-30% a year, of course. If there’s a slowdown in AI spending or a general economic drag, revenue growth could stall.

This scenario wouldn’t be good for the stock. Because it does have a high ‘priced-for-growth’ valuation today – currently the price-to-sales ratio (not price-to-earnings) is about 17.

I’m optimistic that growth will continue to be strong however. Because I expect more businesses to experiment with, and deploy, AI in the years ahead. I can see this company getting much bigger. So I think the stock’s worth a closer look today.

The post Move over Nvidia: here’s my new favourite AI stock appeared first on The Motley Fool UK.

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Edward Sheldon has positions in Nvidia and Snowflake. The Motley Fool UK has recommended Nvidia and Snowflake. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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