Is the Data Center Investing Trend in Trouble?

**Jon Quast** (0:03)
Is the data center investing trend in trouble? Motley Fool Hidden Gems Investing starts now.
Welcome to Motley Fool Hidden Gems Investing. I'm your host, Jon Quast, and I'm joined today by Fool contributors, Matt Frankel and Lou Whiteman. Today, we're gonna talk about the data center build out trend, and I promise that we're not going to regurgitate past talking points. There's going to be some new stuff here. But first, we wanted to talk about Snowflake. Snowflake has been a very popular stock among investors since it went public a number of years ago. It is over a $100 billion company, and today it is up more than 20%.
It is hitting 52-week highs, and it is approaching all-time highs. Matt, we're gonna let you talk to us here about what is happening with Snowflake.

**Matt Frankel** (0:58)
Yeah, this is one I have to think that Berkshire Hathaway sold too early. They beat expectations pretty handily. Revenue growth was expected at 35%.
It ended up 37%.
They beat on the bottom line for the fifth consecutive quarter. Massive guidance raise. And they posted a net revenue retention rate of 126%, which means that its customers are spending more and more as time goes on. That's a pretty remarkable rate. So, not much to dislike about this quarter.
Yeah, Jon, do we have to call Warren Buffett in and give him a lecture on day trading? Because yeah, what's going on here, Warren? Why did you get out? This has been just a weird stock, though, hasn't it? Even for tech stocks, it was a darling IPO in part because it was the... Berkshire got in before the IPO, right? So, it was the tech company that Warren Buffett endorsed. It fell nothing. I mean, it fell and did nothing for about three years and now it's great again. But then again, it's also barely back to its all-time highs from 2021 Just a really, really interesting company, but a heck of a quarter, not just a beaten raise, but a really aggressive raise. 36% revenue growth forecasted in fiscal 27 That's from a pretty good base to begin with. Definitely, as Ron Gross would say, firing on all cylinders.

**Jon Quast** (2:21)
Well, and yeah, both of you are referencing why it has had such a weird publicly traded company arc.
Berkshire Hathaway, Warren Buffett, very much known for being tech-averse and getting in on this company that a lot of people didn't understand prior to the IPO and it was seen as a major stamp of approval here. Like if the tech-averse investors are getting in on this, shouldn't I get in on this as well? Massive run up prior to the IPO and it is just kind of, I want to circle back to something that Lou just said here. It's kind of been a loser for many investors, depending on when you got in, this has been a loser stock. But you look at what it's done since going public, it routinely beats its revenue guidance. It routinely raises expectations.
But it hasn't been a good performing stock for many investors. So what is different this time? Because we've beaten raised in the past, we're beating and raising now and it's being celebrated. What is really different here, Matt? Yeah.

**Matt Frankel** (3:22)
So the price jump wasn't just because they beat expectations. Like you said, Snowflake regularly beats expectations. Five consecutive quarters of better than expected bottom line.
It's because of the acceleration really. So over the past three quarters, their top line growth has gone from 30 percent to 34 percent to 37 percent all ahead of expectations. And Q3 guidance, it implies even more acceleration going forward. And not only that, but margins improved while the growth accelerated faster than expected, which is really impressive. A lot of companies have this kind of acceleration right now, but they're paying up for it.
Adjusted operating margin came in at a little over 15 percent. It was 11 percent a year ago. So not only is the growth accelerating, but so is the profitability. That's really why you're seeing the stock up more than 20 percent today.

**Jon Quast** (4:13)
Yeah. I wish I could jump in the DeLorean and invest just about two years ago, because the stock has roughly quadrupled since it's 2024 lows.
Really, boys and girls, if you want to find a stock that can perform so well over a short time period, I mean, find a stock that is about to start accelerating revenue growth, one that's not doing it right now, but revenue growth is about to really pick up. That can often be something that is going to perform well. But Lou, let's talk about this acceleration a little bit. I mean, it's not just that it's accelerating. Why is all of a sudden the gas pedal hitting the floor for Snowflake?