What They Do
Snowflake operates a cloud-based data platform that allows companies to store, process, and analyze massive amounts of data across multiple cloud providers. They serve enterprises looking to modernize their data infrastructure and are rapidly expanding into AI applications and analytics. The company generates revenue through a consumption-based model where customers pay for the computing and storage resources they use.
Investment Thesis
**AI transformation driving accelerated growth** — AI product adoption surged with 9,100+ accounts now using AI capabilities, while Snowflake Intelligence scaled to 2,500 accounts in just 3 months**Large deal momentum indicates enterprise commitment** — Signed largest deal in company history at $400M+ total contract value and 7 nine-figure contracts in Q4 alone, with remaining performance obligations growing 42%**Margin expansion story gaining traction** — Operating margins improved 400+ basis points YoY to 10.5%, with stock-based compensation declining from 41% to 34% of revenue and expected to hit 27% in FY27Key Risks
**Consumption model creates revenue volatility** — Usage-based pricing makes quarterly results less predictable, especially during economic uncertainty when customers may optimize spending**Intense competition in data and AI markets** — Facing pressure from cloud hyperscalers (AWS, Azure, Google) who bundle competing services and have deeper pockets for R&D investmentGrowth Story
Revenue is expected to accelerate from current levels to $7.3B by CY27, representing strong double-digit growth driven by AI product adoption and large enterprise deals. The company is transforming from a data warehousing platform into an AI application development platform, expanding its addressable market significantly. Product revenue grew 30% YoY in Q4 with 27% growth guidance for FY27, supported by adding 740 net new customers and 56 customers now spending $10M+ annually.
Profitability Profile
Snowflake is demonstrating strong margin expansion with gross margins at 67% and operating margins improving to 10.5% from much lower levels. The company is on a clear path to meaningful profitability with operating margins expected to reach 12.5% in FY27 and free cash flow margins of 25.5%. Stock-based compensation is declining as a percentage of revenue, indicating improving unit economics and operational leverage.
Competitive Position
Snowflake maintains a strong position as the leading independent cloud data platform, differentiated by its multi-cloud architecture and consumption-based pricing model. While facing competition from cloud giants like AWS Redshift and Google BigQuery, the company is expanding its moat through AI capabilities and application development tools. Recent partnerships with OpenAI ($200M), Anthropic, and Google, plus the $600M Observe acquisition, strengthen its competitive positioning in the emerging AI infrastructure market.
Recent Momentum
Q4 results showed strong execution with revenue beating estimates by 2.2% and EPS exceeding by $0.05, marking the fourth consecutive quarter of beats. The company has consistently outperformed expectations throughout 2025, with revenue beats ranging from 2.2% to 5.2%. Management's confidence is evident in maintaining 27% growth guidance despite a challenging macro environment, supported by record bookings and AI product traction.
What Wall Street Thinks
Analysts are increasingly focused on Snowflake's AI transformation and the sustainability of its growth trajectory, with particular interest in the durability of 27% growth guidance and consumption predictability. There's strong enthusiasm around the AI product momentum and large deal wins, though some debate remains about competitive positioning against hyperscale cloud providers. The recent string of earnings beats has improved sentiment, but questions persist about maintaining growth rates in a challenging environment.
The Bottom Line
Snowflake is successfully pivoting from a data warehousing company to an AI platform company, with accelerating product adoption and improving profitability metrics that justify its premium valuation in a challenging market environment.
