Snowflake is likely to benefit from the next hiring boom

All the market hype is now focusing on the world of technology stocks, especially after the massive rise in stocks like Nvidia Corporation NASDAQ:NVDA and other companies involved in the rise of artificial intelligence trends that are taking over today’s economy and financial markets. However, there is another trend hiding in plain sight.

For reasons that will become clear in a minute, the business cycle is about to see a new boom and bullish momentum to follow, meaning the business services sector will likely be next to thrive as more and more companies seek out the market. help with organization and scalability in this new wave.

That’s why companies like it Snowflake NYSE: SNOW could soon be the next target for investment dollars to find a home. At the moment this may seem like just an idea. But you will soon discover current trends that show why this is more a reality than a theory. But more on that later. First, some pointers to guide you along the way.

All roads lead to Rome

The US economy is starting to overheat. You can follow this trend by checking employment and business activity data for the past few months. Companies are preparing to regain their pre-COVID rhythm with all the efficiency that perhaps wasn’t present then.

According to the latest report on the employment situation, in the last month the economy created 353 thousand jobs, far from a stagnant trend in economic activity; meaning that companies that allow the employment transition to proceed smoothly will likely see a higher bid in their prices.

The best example in this scenario is Intuit Inc. NASDAQ: INTU, a stock that is now flirting with its previous all-time highs; As companies must factor in new expenses and payroll needs for this new wave of hiring, traders have taken Intuit for a ride higher, which could extend to other key names like Snowflake.

Now that the Fed is also proposing interest rate cuts this year, trading activity will likely continue to expand to create additional demand for these companies. According to the FedWatch tool of CME Group Inc. NASDAQ: ECMtraders are pricing in these potential interest rate cuts as early as May this year.

Since Snowflake has underperformed Intuit by as much as 12% over the last twelve months, the relative valuation metrics and price action will show you how big of a gap this stock could fill soon.

Furthermore, it also outperformed the SPDR Technology Select Sector Fund NYSEARCA: XLK by as much as 26.2% over the past six months, meaning that in the world of technology, Snowflake enjoys preferential treatment from the markets.

Does the market agree?

Starting with Wall Street analysts, those who work for Truist Financial Corp. New York Stock Exchange: TFC have raised their price targets up to $250 per share before the company’s next quarterly earnings announcement, implying that they could expect really good things from management this time.

Additionally, Snowflake has attracted the attention of other financial industry players; Investment houses such as Vanguard Group and Berkshire Capital Holdings have increased their already large holdings in the stock to 8% and 39.2%, respectively, as of February 2024.

As a further check on this stock’s sentiment relative to other equally essential stocks in this economy-wide hiring wave, you can see how markets are pricing this stock today as a sentiment indicator.

Signing of new hiring documents and other agreements, DocuSign Inc.NASDAQ: DOCU could be considered a worthy adversary to push Snowflake out of the spotlight, but the markets have already made their choice.

Basing the test on the price-to-earnings ratio, it would make sense that markets and investors would be willing to overpay for a good thing, as was the case with Snowflake. With a P/E of 206.6x, some would abandon its “expensive” name. But remember the saying, “It has to be expensive for a reason.”

Companions like Intuit only trade at a P/E of 67.5x, which is less than half of Snowflake’s valuation. Since Intuit has already run its course and announced higher earnings, its P/E ratio is now falling.

Likewise, Snowflake’s high valuation could be a sign that markets expect to see an earnings boom followed by a similar rise in the stock price come earnings time.

Before you consider DocuSign, you’ll want to hear it out.

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