Finding what stocks large and successful investors own can be a great place to find new investment ideas. After all, if this group of investors owns the stock, they're probably well informed, as their resources to research the stock are far greater than an individual investor's. After looking at what stocks the top hedge funds own, it's clear many firms are betting on Snowflake (SNOW 1.17%) to do well.
Out of 16 hedge funds that the Motley Fool analyzed, four own Snowflake. While that may not seem like a high percentage, the only stocks that were more common were some of the large tech companies like Apple, Meta Platforms, or Alphabet. So Snowflake's inclusion in this list is quite noteworthy.
But does that mean Snowflake is a buy now? Let's find out.
Snowflake plays an important role in AI
Snowflake is a key player in the data infrastructure space. Its cloud product gives its users the tools to efficiently store data of all types on whichever cloud computing provider they choose. Once the data pool is established, users can perform data science on it, feed it into various applications, sell the data set on the Snowflake marketplace, or use it for tasks like training artificial intelligence (AI) models. The latter gets many hedge funds interested in the stock, as Snowflake's product is a key part of AI proliferation.
NYSE: SNOW
Key Data Points
It's no secret that behind every good AI model is a vast data set. As a result, having a product like Snowflake to collect data continuously is key to ensuring that an AI model is useful. For example, if a company runs an advertising campaign on months-old data, it may not result in the best outcome if it uses up-to-date information. The same goes for large language models that power generative AI platforms like ChatGPT or Google Gemini.
With Snowflake's key place in the AI world, it's no surprise it's in the hedge funds of many tech billionaires. But it's also gotten cheaper over the past few months.
You can buy the stock cheaper than what the billionaires likely did
Investors can learn more about what hedge funds hold through a 13F filing, which has to be filed with the SEC if an entity owns more than $100 million in stock. These are due 45 days after the end of each firm's fiscal quarter, so they are a bit trailing in nature.
The Motley Fool's research on various tech hedge funds utilizes each fund's Q4 holdings, and Snowflake's stock has decreased in value since then. After Snowflake reported earnings on Feb. 28, the stock cratered nearly 20% the next day. With the stock sitting over 30% down from its 2024 highs, it's safe to say that many of the hedge funds that held Snowflake shares likely didn't get the lower share price since it was more than 45 days after the start of the year.
Snowflake's stock sold off because its longtime CEO, Frank Slootman, suddenly retired, and its guidance for FY 2025 (ending Jan. 31, 2025) was a bit weak. Still, Snowflake's new CEO is a great pick, and management guided Snowflake's product revenue to grow by 22%. Those are far from reasons to dump the stock, and they give investors a buying opportunity.
At its current levels, Snowflake has reached a price-to-sales (P/S) valuation near the lowest on record for the stock. That's significant for a company that should be hitting its stride as AI becomes more mainstream.
SNOW PS Ratio data by YCharts
With that in mind, I wouldn't be surprised if some of these hedge funds increased their stake in Snowflake during Q1. That information won't be revealed until mid-May. So if you want to get into the stock before the rest of the public knows what the billionaires are doing, you should consider buying Snowflake now.
