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Artificial intelligence (AI) is transforming all industries. The top tech titans are the market favorites; however, under-the-radar AI companies, such as Snowflake (SNOW), have quickly risen to become major players in cloud computing and data warehousing.
Snowflake just reported another strong quarter, with rising product revenue growth. Despite a Q2 report showing stabilizing business driven by AI demand, the stock fell 14.7% on Thursday due to management's "conservative guidance" for fiscal 2025.
Wall Street predicts that SNOW stock could rise by around 63% over the next 12 months. SNOW stock has dropped 42% so far this year, compared to the tech-heavy Nasdaq Composite's ($NASX) 17.4% gain, creating an opportunity to buy on the dip.
Snowflake's Business is Stabilizing
Snowflake, valued at $45.2 billion, offers a cloud-based data platform that allows businesses to manage and analyze large amounts of data efficiently. The Snowflake Data Cloud, the company's primary product, enables users to store, manage, and analyze data in a unified environment. The company's consumption-based pricing model generates recurring revenue, boosting its total revenue growth - as evidenced by its strong second-quarter fiscal 2025 results.
Snowflake's total revenue rose 28.9% year on year to $828.7 million. Product revenue, which accounts for the majority of total revenue, increased by 30% to $829.3 million, with professional services accounting for the remainder.
The company’s net retention rate, a key metric for SaaS companies, stood at 127%, indicating that existing customers are not only staying but also increasing their use of Snowflake's services.
Furthermore, Snowflake's rapidly expanding customer base and customers' faith in its products have resulted in a 48% increase in remaining performance obligations, or RPO (contracted revenue to be recognized in the future), to $5.2 billion.
While the company reported net income of $0.14 per share in the first quarter, it posted a net loss of $0.95 per share for Q2. For now, Snowflake’s focus remains on reinvesting in growth, particularly in product development and expanding its customer base.
CEO Sridhar Ramaswamy stated, “The quarter was hallmarked by innovation and product delivery, and great traction in the early stages of our new AI products. With the combination of our platform, the network effect of collaboration, and our AI innovations, we have a huge opportunity ahead to deliver even greater value to our customers."
Snowflake ended the second quarter with $3.2 billion in cash, cash equivalents, and short-term investments. The company also reported an adjusted free cash flow (FCF) of $66 million. Management anticipates generating 26% of total revenue as adjusted FCF in fiscal 2025.
The company expects product revenue to increase by 26% to $3.3 billion in fiscal 2025. Likewise, analysts predict total revenue growth of 25.8% to $3.53 billion in fiscal 2025, with a 22.6% increase in fiscal 2026. Furthermore, analysts predict that the company's adjusted profit will be $0.59 per share in fiscal 2025, rising to $0.95 in fiscal 2026.
What’s Wall Street View on SNOW Stock?
Following its Q2 earnings, Piper Sandler analyst Brent Rabatin reiterated his "strong buy" rating for SNOW, with a price target of $165. JMP Securities analysts also maintained their "market perform" rating, but reduced the target price to $190 from $235.
Overall, Wall Street rates SNOW stock a “moderate buy.” Of the 41 analysts that cover the stock, 25 rate it a “strong buy,” while three rate it a “moderate buy,” 11 recommend a “hold,” and two suggest a “strong sell.”
The average target price of $187.97 for SNOW indicates an upside potential of 63.2% above current levels. Plus, its Street-high estimate of $240 implies the stock can gain as much as 108.3% over the next 12 months.
The Bottom Line on SNOW
Looking ahead, Snowflake's growth prospects remain strong, especially as data becomes increasingly important across industries with AI progressing rapidly. The company's focus on expanding its product offerings, entering new markets, and strengthening customer relationships should support its growth trajectory.
Snowflake stock is currently trading at 12 times forward 2025 sales, which is reasonable. However, achieving consistent profitability will ultimately determine whether it is a sound long-term investment. As a result, for long-term investors, Snowflake represents a high-risk, high-reward opportunity in cloud computing.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
