Snowflake shows how easily AI valuations can melt

Imaginary avalanche. Snowflake, the $75 billion cloud data company, lives up to its name in one way, and doesn’t in another. A fifth of the company’s valuation melted away after the company said on Thursday that growth may slow a little, and that 65-year-old chief executive Frank Slootman had retired. The $14 billion market-capitalization hit shows just how vulnerable AI-related firms are to small changes in too-exuberant expectations.

It’s not irrational of investors to worry about Slootman’s exit, since he shepherded the company through its initial public offering in 2020, during the dark days of the pandemic. However, he’s remaining as chairman. The charms of the Montana wilderness – Slootman is based in that mountainous state – may be more of a motive than any inherent problems at Snowflake.

Yet problems there are. The company on Thursday said it expects revenue from its products to grow 22% this year, compared to the 30% analysts expected, according to Visible Alpha. That jeopardizes its goal of reaching $10 billion in revenue in the company’s fiscal 2029. Then again, penciling in 30% growth for years to come in a fast-changing and fairly new field always seemed aspirational rather than concrete. That hurt Snowflake, which was valued at 19 times revenue over the next 12 months prior to the news.

Perhaps new CEO Sridhar Ramaswamy is just being conservative. But he has now had an up-front view of how investors react when their high hopes get even slightly dashed. After the dizzying boom in AI stocks, he won’t be the last. No two snowflakes are alike, but when it comes to investor exuberance, tech firms certainly can be.