Once known primarily as a cloud-native data warehouse provider, Snowflake(NYSE: SNOW) has since evolved into a prominent player in the artificial intelligence (AI)-powered enterprise data management space. The company is using its cloud computing, data, and artificial intelligence capabilities to accelerate the pace of product innovation, while also ensuring cost efficiencies.
The recent earnings season has highlighted the robust demand for AI-powered tools and applications despite macroeconomic challenges. Hence, it is only logical to expect a strong demand for Snowflake's cloud data platform, especially since the company offers a range of AI capabilities to its clients. Clients can query and search both structured and unstructured data, and build AI-powered agents while the data remains secure within the Snowflake cloud platform.
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However, Snowflake's shares are currently down nearly 55% from their all-time high in November 2021. While the stock was relatively overvalued at the time, it now appears to be a wise investment, since shares may surge after the company reports its fiscal 2026's first-quarter earnings, scheduled for May 21.
Expanding addressable market
Snowflake launched more than 400 new product capabilities in fiscal 2025 (ended Jan. 31), nearly double the number released in fiscal 2024. This commitment to product innovation is playing a critical role in opening new market opportunities for Snowflake in areas such as structured and unstructured data analytics, data engineering, AI, and machine learning.
Snowflake's strategy of embracing open data formats, especially Apache Iceberg, has enabled the company to handle 100 to 1,000 times more data than previously, resulting in a significant expansion of its addressable market. Iceberg has given Snowflake access to previously inaccessible data workloads.
Furthermore, Snowflake supports a wide range of data types, including structured, semi-structured, and unstructured, thereby opening up new use cases and market opportunities. The acquisition of the open data integration platform Datavolo has given Snowflake access to connectors that help clients bring in data seamlessly from various sources, including Microsoft's SharePoint, Alphabet's Google Drive, Workday, Salesforce's Slack, and many others.
AI strategy
The Cortex AI suite -- a fully managed AI service which includes a range of AI capabilities to enable customers to design, build, deploy, and manage AI agents with structured and unstructured data -- is the backbone of Snowflake's AI strategy. It includes Cortex Analysts to enable customers to analyze structured data using natural language questions directly, and Cortex Search to leverage enterprise-grade search capabilities for unstructured data. It also includes Cortex Agents, an agent orchestration framework to ensure seamless planning and execution of tasks across structured and unstructured data.
Snowflake has also partnered with leading AI model developers, including Anthropic, Meta Platforms, OpenAI, and DeepSeek. In February 2025, the company expanded its partnership with Microsoft to enable its clients to directly build AI-powered apps and data agents using OpenAI's models within the Cortex AI suite on the Microsoft Azure cloud computing platform. The deal will also enable users to work with Cortex Agents within Microsoft 365 Copilot and Microsoft Teams. These AI initiatives are attracting new customers and ensuring a sticky customer base for the company.
Management confidence
Snowflake reported a 30% year-over-year increase in product revenue to $3.46 billion for fiscal 2025. The company's net revenue retention rate of 126% shows strong customer loyalty, even in challenging macroeconomic conditions. Snowflake is also seeing increased momentum in acquiring new customers and in cross-selling and upselling to existing customers.
Management now expects fiscal 2026 product revenue to grow 24% year over year to $4.28 billion. While the company is guiding for stable growth in its core business, new product features are expected to accelerate growth rates in the second half of fiscal 2026. With remaining performance obligations (RPO, a metric to gauge future revenue growth) of $6.9 billion at the end of fiscal 2025, there is significant visibility in Snowflake's revenue pipeline for fiscal 2026.
Snowflake's focus on optimizing costs by centralizing teams, eliminating redundant management layers, and implementing continuous performance management is gradually helping to improve margins. These initiatives are helping expand the company's margins. Management expects a non-GAAP operating margin of 8% in fiscal 2026, an improvement from 6% in fiscal 2025. Snowflake's adjusted free cash flow margin is expected to be a healthy 25% in fiscal 2026.
Snowflake is also committed to reducing its stock-based compensation expense (a long-standing concern) from 41% of its revenue in fiscal 2025 to 37% in fiscal 2026. The company also expects to decrease these expenses even more in the coming years.
Bullish analyst opinions
The Wall Street Journal tracks 49 analysts who cover Snowflake stock. Of these, 34 are very bullish, while five others are also overweight, indicating bullish sentiment about the stock. The remaining 10 have recommended a hold rating, while none are bearish for the stock.
The average target price for the stock is $201, implying an upside of 11.7% from its current level (as of May 12) over the next 12 months. The Wall Street Journal's high target price of $235 implies a solid upside potential of over 30%.
Snowflake is currently trading at 16 times forward sales, which is significantly lower than its five-year average of 30.4 times. Although the valuation is not particularly cheap, it remains reasonable for a company with robust top-line growth projections, expanding margins, and plans to reduce its stock-based compensation expense significantly in the coming years.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Microsoft, Salesforce, Snowflake, and Workday. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
