How Databricks Is Quietly Becoming One of the Most Powerful AI Stocks Yet to Go Public

Key Points

• Databricks has emerged as a competitive threat to Snowflake.

• A $15 billion fundraising round earlier this year confirms the excitement around this company.

• According to the CFO, revenue was on track to rise 50% yearly through July.

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Databricks has attracted increasing attention in recent months. Although it is currently a privately held company, it raised a considerable amount of money earlier this year and reported an annualized revenue projection despite private companies not being required to disclose such information. It also announced global expansions and additional hiring that will heavily focus on recruiting talent in the artificial intelligence (AI) field.

Not surprisingly, such revelations have led to speculation on when Databricks might launch an IPO. While it has not publicly announced such an intention, the company has arguably become the most prominent AI company not trading on the market. Here's why.

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Databricks described

Databricks is a data cloud platform and stands out by utilizing a data lakehouse platform. This combines a data warehousing platform with a data lake, which stores data in a raw format.

Through the platform, users can store structured, semi-structured, and unstructured data in the cloud. Databricks also enables its clients to secure, manage, structure, and apply data for use in analytics and performing machine learning workloads. It is also a more appealing alternative to storing data in silos, which makes data governance and protecting its integrity difficult.

Databricks also accomplishes many of its tasks through the Mosaic AI platform. It helps developers design generative AI applications to find relevant documents and data that provide context for large language models, thereby increasing the accuracy of responses.

This leads to inevitable comparisons with its peers. One is MongoDB, whose nonrelational database has grown in popularity. Still, the competitor grabbing the most attention appears to be Snowflake (NYSE: SNOW). Snowflake is a competing data cloud company that drew investor attention when it received backing from Warren Buffett's Berkshire Hathaway before its September 2020 IPO.

Will Databricks go public?

Snowflake's history as a public company may also be a reason Databricks might consider an IPO. Although Snowflake sells for far below its 2021 high, it has grown substantially from the IPO price of $120 per share in 2020.

Admittedly, Snowflake was not immune to selling during the 2022 bear market, and Berkshire later exited its position. Nonetheless, it has consistently commanded a valuation premium, and with a price-to-sales (P/S) ratio of 19, Snowflake stock remains relatively expensive.

Moreover, Databricks' recent fundraising round and financial revelations may also indicate both its value as a start-up and its intention to go public. Early this year, the company raised $15.3 billion in equity financing, which gave it a presumed valuation of $62 billion, not far below Snowflake's current market cap of $71 billion.

As mentioned, Databricks has also increasingly made voluntary financial disclosures. Last month at the Data and AI Summit, CFO Dave Conte stated that he expected Databricks to generate $3.7 billion in annualized revenue through July, representing a 50% yearly increase. Such news affirms the company's success, making it easier to draw attention if it later announces a plan to go public.

Databricks' role in the AI space moving forward

Although Databricks remains a private company, its successes make it one AI company investors need to watch.

Databricks' role as a data cloud company makes it a prominent player in the AI space, and the competitive threat it poses to rival Snowflake should be closely watched by Snowflake shareholders and tech investors in general. Also, the company's $15 billion fundraising haul last year shows that private investors are already on board.

Additionally, the success of Snowflake's IPO and its premium valuation could bode well for Databricks, should it go public. Considering Databricks' 50% revenue growth and the continued investor focus on AI, the company is likely to hold the attention of investors, regardless of whether it remains private or launches what would likely be a highly anticipated IPO.

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Will Healy has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway, MongoDB, and Snowflake. The Motley Fool has a disclosure policy.