(Photo: Zdenek Machacek via Unsplash)

Data cloud company Snowflake SNOW stands out as one of the select few software companies that face a large growth opportunity, according to Evercore ISI.

The Snowflake Analyst: Kirk Materne initiated coverage of Snowflake's stock with an Outperform rating and $311 price target.

The Snowflake Thesis: Snowflake directly addresses the rapid growth and democratization of data within organizations, Materne wrote in the initiation note. Snowflake happens to be a market leader in the space, yet its market share of the $78 billion total addressable market (in 2024) stands at just 1.2%.

Snowflake has only 4,000 customers on its platform, which is a small fraction compared to a company like VMware, Inc. VMW that boasts 500,000. As such, Snowflake is in the very early innings of a multi-year long growth trajectory so its revenue growth potential and margin expansion represent a "huge opportunity."

The research firm is estimating Snowflake can generate a 60% compounded annual growth rate through 2025.

However, investors should be cautioned that Snowflake is "not for the faint of heart" as shares are already trading at a premium on nearly every metric, the analyst wrote. Most notably, the stock is trading at 32 times 2022 EV/revenue so the bullish case will "play out over multiple years" and not just a few quarters.

SNOW Price Action: Shares of Snowflake were trading higher by around 5.24% Friday morning at $228.40.