Earnings Watch: Salesforce, Snowflake, and Leonardo

Key points:

• Focus on US tech earnings this week: Salesforce us expected to report 10% YoY revenue growth, focusing on profitability. Guidance for 11% YoY growth in FY25. Snowflake is expected to report 29% YoY revenue growth (down from 54% YoY), potential upside surprise from generative AI.
  
  
• European defence sector: Leonardo is expected to report lower revenue growth (5% YoY) compared to peers, share price exceeding analyst expectations.
  
  
• Materials sector: Biggest price movements during earnings season, with Corteva leading the way (18% increase in two days).

Can Snowflake and Salesforce ride the AI hype?

With AI being the new hyped trend in equity markets there will be a lot of focus on Snowflake and Salesforce this week as both companies are part of the booming US technology sector. Both companies report earnings after the US market close on Wednesday.

Analysts expect Salesforce to report FY24 Q4 (ending 31 January) revenue of $9.2bn up 10% YoY and EBITDA of $3.8bn up from $2.5bn a year ago as the business software maker remains focused on improving profitability. Analysts expect Salesforce to guide FY25 11% YoY revenue growth as rebound in cloud application software is still uncertain despite pickup in AI infrastructure spending.

Snowflake has a stronger link to the AI trend and analysts expect revenue growth of 29% YoY down from 54% YoY a year ago. There might be an upside surprise for Snowflake related to generative AI as companies are using their own data on top of foundational LLMs. The recent run-up in Snowflake’s share price has pushed it to very close to the consensus price target at $229.

Will Leonardo confirm the growth explosion in European defence?

Just as cocoa’s ascent is the only thing that can keep up with Nvidia’s share price, so is our defence basket the only theme that has done better this year than semiconductors. Our defence basket is up 11.2% as of Friday’s closing prices. As our defence basket table shows, it is the European defence stocks that are driving the return of this theme. One of those stocks is Italian based Leonardo which reports earnings on Thursday. Analysts expect 5% YoY revenue growth and EBITDA at $755mn up from $590mn a year ago.

Compared to expectations for other European defence companies such as German based Rheinmetall, the revenue growth expectations are quite low for Leonardo. Revenue growth is estimated at 6% YoY in 2024, 5% YoY in 2025, and 4% YoY in 2026. Far from the +17% growth rates expected for Rheinmetall. Analysts covering Leonardo have difficulties keeping up with the share price as the consensus price target sits 9% below the current price. So either analysts are too conservative or the market has entered a stage where it blindly buys everything with European defence label.