Will This Firm Challenge Buffett’s IPO Play?

While companies like NVIDIA, C3.ai and Palantir have attracted almost endless investor attention amid the recent AI boom, a lesser-known company called Databricks has been quietly building toward what could be a very valuable IPO.

The company, which specializes in enterprise data storage and analytics, has attracted numerous private investors looking to profit from the pick-and-shovel companies behind the explosion of AI.

While Databricks may not be a household name, there is no denying its reach. The company now has over 9,000 customers, some of which are among the biggest businesses in the world. So can you buy Databricks stock?

Is Databricks a Public Company?

At this time, Databricks is not publicly traded and has not formally filed for an IPO, so you cannot buy its stock.

While several publicly traded companies have made private investments in Databricks, retail investors cannot currently access Databricks directly.

What Is Databricks Worth?

Even though Databricks is not yet publicly traded, the company’s valuation is reasonably well-known due to a series of funding rounds from partner companies and venture capitalists.

Following $500 million in capital-raising activity last month, Databricks now has an estimated total value of $43 billion.

For context, the much more widely publicized data analytics company Palantir currently has a lower market cap of $38.5 billion.

Is Databricks a Good Investment?

Until Databricks pursues an IPO, it’s impossible to say whether the stock would be a fairly priced investment. What is relatively clear, however, is that the company is operating at the forefront of the latest trend in data storage and analytics.

Databricks’ platform uses an architecture known as a data lakehouse. This approach to data storage combines the permanence of data warehouses with the scalability and unstructured data storage of a data lake.

At the moment, Databricks is considered the leading company in the effort to popularize data lakehouses. Its biggest competitor in this area is Snowflake, a company which has become famous in the investment world for Warren Buffett’s rare interest in its IPO.

Snowflake, however, doesn’t offer the same flexibility that Databricks does due to its proprietary system. This leaves Databricks with a significant moat in the data lakehouse space that could prove to be quite valuable.

Databricks could also emerge as a key player in the growing AI arena. The data lakehouse architecture is increasingly being viewed as a potential solution for storing the massive amounts of data needed to train artificial intelligence tools.

Already, growing interest in AI tools has caused a spike in demand for data storage. Alongside storage capacity, this trend will also likely create stronger demand for new architectures that can help to maintain and curate these massive amounts of data. If this is the case, Databricks is well-positioned to be a prime beneficiary of AI growth.

This is especially true as Databricks continues to cater to the growing needs of the AI market. The company is increasingly touting its cloud-based lakehouse architecture as a solution for unified AI development. Databricks also offers a number of data analytics solutions that will likely prove valuable as companies push for deeper insights from their data.

Databricks Is Growing Rapidly

Certainly, Databricks offers the kind of rapid growth investors in the tech market tend to seek out. Last year, the company generated revenues of over $1 billion, representing a growth rate of more than 60 percent over the previous year.

Annual recurring revenues have also been growing at a rapid pace, setting the company up for long-term financial success. Due to a lack of public filings, it’s still unclear what Databricks’ margins look like or whether the company is profitable.

A final point in favor of Databricks from an investment perspective is its impressive list of both customers and partners. Tech partners of Databricks include the likes of Cloudflare and MongoDB, while Microsoft, Amazon and Google all support integration of the company’s platform through their cloud services.

On the customer front, Databricks serves a roster of A-list companies that includes Shell, T-Mobile, AT&T and Toyota, among many others.

Is Databricks a Buy If It Goes Public?

With all of this said, there are no guarantees that Databricks will be a good choice for investors if and when it chooses to pursue an IPO.

To begin with, the stocks of high-growth tech companies are facing increasing pressure from rising interest rates. With the Federal Reserve looking to leave interest rates at elevated levels for a prolonged period of time to curb inflation, tech stocks could stagnate or sell off until the Fed signals a loosening of monetary policy.

On the other hand, Databricks could also be vulnerable to overvaluation if it goes public while AI hype is still running high.

In spite of higher rates, companies believed to be at the forefront of the AI boom have seen their shares rise substantially this year. This has led to what many perceive to be an AI stock bubble that could be due for a correction.

Taking all of this into consideration, the answer to the question of whether Databricks is a good investment is still unresolved.

Although the company undoubtedly has potential and an excellent list of both partners and customers, there are also significant headwinds for a high-growth AI stock debuting in today’s market. The ultimate test of the company’s viability, of course, will be its eventual stock price in comparison to its ability to generate steady cash flows.

Who Owns Databricks?

In addition to its founders, Databricks is owned by a number of companies that have invested in it over several funding rounds. Longtime investors include T. Rowe Price, Fidelity Management and Andreessen Horowitz. More recently, Capital One Ventures has taken a stake in Databricks.

Perhaps the most interesting investor in Databricks is chipmaker NVIDIA, which came on as a new investor during the most recent funding round. The two companies are natural collaborators, as both are focused on data processing for AI applications.

With NVIDIA emerging as one of the biggest winners of the AI boom, a strategic partnership with the company will likely benefit Databricks as it attempts to push the use of its data lakehouse architecture for AI applications.

When Will Databricks IPO?

Despite its aggressive push to raise funds and a growth proposition that would have clear appeal to investors, Databricks has not formally announced any plans to go public. Rumors of an IPO in 2023 have already failed to materialize, though there is at least some chance of a 2024 offering.

More likely, the company could wait until 2025 when interest rates are expected to come down and investor hunger for high-growth tech stocks may be on the rise again.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.