Snowflake (SNOW -2.25%) created the Data Cloud, which helps organizations unify their data so they can extract valuable insights even when it's stored across different cloud platforms. Data is the lifeblood of the artificial intelligence (AI) revolution, so Snowflake is perfectly positioned to develop the technology for its customers.
Last year, it launched the Cortex AI platform, which features a collection of applications. Snowflake customers can use it to build their own AI software with a combination of their own data and ready-made large language models (LLMs). Plus, it includes pre-built tools like Document AI, which allows businesses to rapidly extract data from unstructured sources like contracts and invoices.
Snowflake spent the past year carefully managing its costs to keep its losses under control, but that isn't easy when it's trying to create new AI products. In fact, during the recent fiscal 2025 first quarter (ended April 30), research and development (R&D) was Snowflake's largest expense:
That $411 million in R&D spending increased a whopping 48% from the year-ago period, and it led to a 31% jump in Snowflake's operating costs overall. Unfortunately, that sent the company's Q1 net loss soaring by 40% to $318 million.
Snowflake grew its revenue by 34% year over year during the quarter, and while that was a strong result, it marked a sharp deceleration from the 50% growth it delivered in Q1 last year. That slowdown has been ongoing for the last couple of years.
Investors will have to get used to high R&D spending and persistent losses if they want Snowflake to take a leadership position in the AI race. However, it could be a recipe for a stagnant stock price if the company can't find a way to reaccelerate its revenue growth.
