Snowflake (SNOW 1.65%) has taken investors on a wild ride since its IPO in September 2020. The cloud-based data warehousing company went public at $120 per share, then more than doubled on its first trade to $245. It attracted so much attention for two reasons: It was growing like a weed, and it was backed by Warren Buffett's Berkshire Hathaway and Salesforce (CRM -0.29%).

Snowflake's stock eventually soared to an all-time high of $401.85 last November. But today, it trades at around $170 per share. The high-flying stock dropped back to the earth as investors fretted over its slowing growth, lack of profits, and high valuations -- which made it a soft target for the bears while rising interest rates drove investors toward more conservative investments.

A circuit shaped like a snowflake.

Image source: Getty Images.

Nevertheless, Snowflake is still growing a lot faster than many of its cloud-based peers -- and it expects that growth to continue through the end of the decade.

Snowflake is currently worth about $54 billion, so it's still dwarfed by cloud giants like Alphabet (GOOG -0.02%) (GOOGL -0.09%), which has a market cap of nearly $1.6 trillion. But could Snowflake continue growing and become even more valuable than Alphabet by the end of the decade? Let's review Snowflake's business model, growth rates, and valuations to decide.

Why is Snowflake growing so quickly?

Snowflake's revenue rose 174% in fiscal 2020, 124% in fiscal 2021, and 106% to $1.22 billion in fiscal 2022, which ended this January. The secular expansion of the data warehousing market is driving that rapid growth.

In the past, large companies often stored their data on various types of software across different computing platforms. That fragmentation created "data silos," which reduced their overall efficiency.

Snowflake breaks down those silos and pulls that data into a centralized cloud-based warehouse, where it can be easily accessed by third-party apps and data visualization platforms like Salesforce's Tableau and Microsoft's (MSFT -0.32%) Power BI. This approach helps companies make better data-driven decisions.

What are Snowflake's long-term plans?

Snowflake generated 94% of its revenue from its product segment last year. It expects its product revenue to grow from $1.14 billion in fiscal 2022 to about $10 billion in fiscal 2029, which implies its top line can grow at a compound annual growth rate (CAGR) of 36% over the next seven years.

By fiscal 2029, Snowflake expects approximately 1,400 of its customers to generate over $1 million in trailing 12-month product revenues by fiscal 2029, compared to only 184 million-dollar customers in fiscal 2022. It also expects its annual revenues from that high-value cohort to rise from $3.5 million in fiscal 2022 to $5.5 million in fiscal 2029.

Snowflake already served 241 of the Fortune 500 companies and 488 of the Global 2000 companies at the end of fiscal 2022, but it expects to gain even more large customers as they upgrade their aging IT infrastructure.

Snowflake is still deeply unprofitable. But between fiscal 2022 and 2029, it expects its adjusted gross product margin to expand from 69% to 78% and for its adjusted operating margin to rise from negative 3% to positive 20%. That forecast implies it can maintain its pricing power as it expands.

But Snowflake won't be worth more than Alphabet

Snowflake still trades at 27 times this year's sales, and it's doubtful it can maintain that frothy price-to-sales ratio if its annual revenue growth slows down to about 30% to 40%. If Snowflake generates $10 billion in revenue by fiscal 2029 -- and its stock is trading at a more reasonable 15 times forward sales -- it would be worth about $150 billion in calendar 2029.

But that would still be less than a tenth of Alphabet's current market cap. Furthermore, Alphabet's valuation could also climb much higher by the end of the decade as its core advertising and cloud businesses continue to expand. Simply put, Snowflake won't come close to matching Alphabet's market cap by 2030, even if it checks off all its long-term goals.

But investors shouldn't assume Snowflake can achieve those goals. Snowflake's success is already prompting Amazon (AMZN 0.23%), Microsoft, and Google to upgrade their own cloud-based data warehousing services -- which are bundled into their market-leading cloud infrastructure platforms. Snowflake also runs its platform on top of Amazon Web Services (AWS), Azure, and Google Cloud -- so it's still ironically paying service fees to its top competitors. If those cloud giants get serious about challenging Snowflake, they could hike their hosting fees while undercutting Snowflake's prices.

Snowflake's stock could double or triple by the end of the decade, even as its growth cools off and its valuations decline. However, it's still expensive after its 50% decline this year, and it could continue to underperform many other cloud stocks which are trading at more reasonable valuations.