Snowflake ups its revenue forecast and buys AI observability firm TruEra, sending its stock higher – SiliconANGLE

Shares of the cloud data warehouse provider Snowflake Inc. rose more than 4% in extended trading today after it beat Wall Street’s sales estimates in its fiscal first-quarter earnings report and raised its full-year guidance.

In addition, the company revealed a plan to acquire assets from TruEra Inc., which makes tools for observing and assessing the reliability of AI models.

The company cited strong demand from customers that are keen to leverage its services for their artificial intelligence projects. It reported first-quarter earnings before certain costs such as stock compensation of 14 cents per share, short of the consensus estimate of 18 cents per share.

However, its revenue jumped 33% from a year earlier to $829 million, easily beating the Street’s target of $788 million. Product revenue for the period came to $790 million, up 34%, and well above the forecast of $751 million. All told, Snowflake posted a net loss for the period of $317 million, compared with a loss of $226 million one year ago.

Looking forward, the cloud services provider offered a fiscal 2025 forecast that calls for $3.3 billion in product revenue, up from its prior outlook of $3.25 billion. If the company achieves that forecast, it would mean product revenue growth of 24% compared to the year prior. It certainly seems achievable, as Snowflake’s product revenue rose 38% in the previous fiscal year.

As for the second -uarter forecast, the company said it sees product revenue of between $805 million and $810 million, which implies 26% growth at the midpoint. Wall Street is looking for just $793 million in second-quarter product sales.

The report is a welcome one, coming just three months after Snowflake experienced the largest-ever single-day decline in its stock price. Back then, Snowflake offered a quarterly product revenue forecast that came up shy of analyst’s expectations, and shocked investors with the surprise departure of its then-Chief Executive Officer Frank Slootman.

However, things are undoubtedly looking up for Snowflake, as its cloud data warehouse products are becoming increasingly relevant amid the ongoing shift from traditional on-premises data centers to the cloud, and the growing demand for AI.

Snowflake’s new CEO Sridhar Ramaswamy (pictured) told investors that the company’s core business is very strong right now. “Our AI products, now generally available, are generating strong customer interest,” he added. “They will help our customers deliver effective and efficient AI-powered experiences faster than ever.”

While Snowflake positions its cloud data store as an ideal option for AI training data, the company is also looking to become an AI player in its own right. Last month, it announced its first open-source large language model, called Arctic, which is designed to compete with other open-source LLMs such as Meta Platforms Inc.’s Llama family, as well as proprietary ones such as OpenAI’s GPT family.

Third Bridge analyst Jordan Berger said the revenue beat can be taken as a sign of increased momentum for Snowflake as it heads into the new fiscal year, though he warned that the company still faces some challenges, with customers looking to cut back on their cloud computing expenditures.

“Our experts tell us that customer cost optimization in the cloud industry remains a critical secular trend in 2024 and significant headwind for Snowflake in particular,” he said. “Continued downward pressure on customer consumption saw net revenue retention dip below 130% for the first time, down from 151% one year prior.”

Still, the analyst believes Snowflake has enough going for it that it can overcome these potential challenges. “Despite persistent headwinds, we continue to hear from our experts that Snowflake remains an industry leader in the sizable and fast-growing market for big data analytics solutions,” Berger said.

Although Snowflake grew its revenue significantly during the quarter, Holger Mueller of Constellation Research Inc. said investors may be concerned about the cost of that growth, as the company went backward in terms of its overall profitability. “The cost of revenue rose linearly to its overall revenue growth,” he pointed out.

Mueller said it has become clear that Snowflake’s AI efforts are key to its ambition of eventually becoming profitable, because its main rivals, the public cloud providers, don’t just rival it as the foundation of data analytics, but as the foundation of generative AI training, which is becoming essential to enterprises. “Investors will be watching Snowflake as it evolves to become an AI platform very closely,” he said. “While there’s a lot of optimism around its plans, the jury is still out and we’re yet to see a verdict being reached.”

In another surprise today, Snowflake said it’s boosting its AI capabilities by acquiring assets from the Redwood-based observability startup TruEra, which had previously raised around $43 million in funding. TruEra specializes in lifecycle management for machine learning algorithms and LLMs. The value of the transaction was not disclosed.

“Snowflake is acquiring the TruEra AI Observability Platform, which provides leading capabilities to evaluate and monitor LLM apps and machine learning models in production,” the company said in an announcement.

TruEra’s AI observability platform is a managed service that can be deployed in public and private clouds. It provides capabilities such as AI model explainability, model quality analytics, review and governance workflows for LLMs, model comparison tools and continuous monitoring.

According to Snowflake, these capabilities can help companies to evaluate the quality of inputs and outputs, and assess how reliable and accurate their AI-based applications are. They can also aid in the detection of AI hallucinations, bias and toxicity, the company said.

Besides its cloud-based observability solutions, TruEra offers a self-service platform called TruLens that provides similar capabilities, but InfoWorld suggests that these assets are likely not included in the deal.

Snowflake said TruEra will enhance its existing features around AI governance, but in reality, the acquisition is more about the company trying to match its rivals’ capabilities. For instance, Amazon Web Services Inc.’s AWS Bedrock, Google LLC’s Vertex platform and Microsoft Corp.’s Azure AI Service all provide LLM evaluation, monitoring and lifecycle management tools.

Snowflake said 37 TrueEra employees will join its staff as part of the acquisition, including its three co-founders – CEO Will Uppington, Chief Scientist Anupam Datta and Chief Technology Officer Shayak Sen.

Snowflake could be looking to expand its AI capabilities even more. Last week, reports said the company is holding talks with the LLM developer startup Reka AI Inc. over a potential acquisition, though a more recent report says the talks are off.

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