Analysts: Snowflake's (SNOW) Rumored Observe Deal Makes Strategic Sense

Snowflake Inc. (NYSE:SNOW) is one of the AI Stocks on Market Radar. On December 23, Baird reiterated the stock as “Outperform” with a price target of $270. Firm analysts see the rumored $1B acquisition of privately-held Observe as strategically logical, with low integration risk.

“Yesterday evening, rumors surfaced (via an article published by The Information) that SNOW could be in talks to acquire privately-held Observe. The rumored ~$1 billion price tag would be SNOW’s biggest acquisition to-date, but we think should still be fairly digestible given the company’s current balance sheet ($4.4 billion of cash and $2.1 billion of net cash at FQ3-end) and FCF generation.”

The acquisition of Observe, an AI-native observability startup, would help SNOW boost its capabilities in full-stack observability, enabling enterprises to resolve issues faster and reduce costs.

Privately held Databricks, which is Snowflake’s top competitive threat, has been expanding its platform by being acquisitive and it only makes sense if SNOW does the same. The acquisition, if true, will allow the company to move up the stack and compete better with Databricks.

“We’d also note the technical integration should theoretically be seamless given that Observe is natively built on Snowflake. Overall, out of all the ways for SNOW to branch out up the stack and into the application layer, we think this introduces the lowest level of integration risk, while also making strategic sense (albeit entering into a competitive application monitoring market).”

Snowflake Inc. (NYSE:SNOW) is a cloud-based data storage company providing a data analysis, storage, and sharing platform.

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