Berkshire Hathaway, led by renowned investor Warren Buffett, has made headlines with its recent sale of Snowflake stock. The move comes amidst a series of significant changes within Snowflake, including a data breach and a surprise replacement of CEO Frank Slootman with Sridhar Ramaswamy. While industry experts once touted Snowflake as the future of the data cloud, the company’s financial losses and leadership shakeup may have prompted Berkshire to reevaluate its investment.
Berkshire’s initial investment in Snowflake occurred before the company’s IPO, with the conglomerate holding 6.1 million shares since the stock’s public debut in 2020. However, the decision to sell was not solely influenced by recent events. Rather, it appears to align with Buffett’s long-standing philosophy, which tends to avoid IPO stocks. Additionally, Snowflake’s lack of profitability and its relatively high price-to-sales ratio did not align with Berkshire’s preference for bargains.
From the perspective of growth-stock investors, Snowflake’s investment thesis may be damaged but not irreparably destroyed. The company’s rapid revenue growth rate has slowed significantly, with projected annual revenue growth for fiscal 2025 falling below the previous year’s rate. This slowdown, coupled with the high valuation, may raise concerns among investors. However, history has shown that stocks like Snowflake can recover when they effectively address challenges such as data breaches.
Ramaswamy’s appointment as CEO brings valuable artificial intelligence (AI) experience to Snowflake, potentially positioning the company for future success in an AI-oriented market. Despite a significant net loss of $634 million in the first half of fiscal 2025, the company’s free cash flow indicates a healthier financial position than the loss suggests. Moreover, Snowflake’s price-to-sales ratio, while above the S&P 500 average, is not uncommon for a growth stock, leaving room for potential expansion if confidence returns.
Ultimately, the decision to follow Berkshire’s lead in selling Snowflake stock should be based on individual investment philosophies. Conservative value investors may consider exiting due to the company’s challenges and losses. However, growth investors may see potential in Snowflake’s attributes and the possibility of a turnaround under Ramaswamy’s leadership.