Shares of Snowflake (SNOW 1.75%) have taken off impressively in the past month amid the broader recovery in tech stocks, with gains of 29% as of this writing. It looks like the data-cloud platform provider's growth is here to stay following its latest quarterly report, which sent its shares soaring.
Snowflake released its fiscal 2026 first-quarter results (for the three months ended April 30) on May 21. Earnings shot up remarkably from the year-ago period, and better-than-expected guidance added to the stock's positive momentum in the past month.
The stock jumped more than 13% following the release of its results. Does this mean it is too late for investors looking to buy this growth stock? Let's find out.
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Artificial intelligence (AI) provides a massive boost
Customers can store, consolidate, and manage data into a single source using Snowflake's data cloud platform. They can then use that data for business analytics purposes, to build applications, or gain business-related insights. And now, the company is enabling its users to apply generative AI to their data on its cloud platform.
Customers can access popular large language models (LLMs) with the company's Cortex AI platform to build generative AI apps with structured and unstructured data, as well as use AI agents and chatbots, search documents, or customized existing models to suit their operations.
Access to its AI features comes without having to buy expensive hardware such as graphics processing units (GPUs) because Snowflake has been investing in powerful GPUs from the likes of Nvidia to build its AI cloud infrastructure.
Clients also save on infrastructure management costs -- Snowflake takes care of the same, along with investing in more infrastructure as users scale up.
These advantages have produced a major jump in the number of customers employing its AI tools, with more than 5,200 of its 11,500-plus clients using its AI and machine learning (ML) solutions every week -- a 30% increase from the end of the preceding quarter.
The overall customer base increased by 19% year over year in the previous quarter, as AI is attracting more customers to its platform.
The increasing adoption of Snowflake's AI tools by existing customers is good news for the company's bottom line, since it is landing more business without having to spend a lot on marketing and sales. Adjusted earnings shot up 71% year over year last quarter, substantially outpacing the 26% growth in product revenue.
The net revenue retention rate -- which compares the revenue generated by customers at the end of a quarter to the revenue from the same group in the year-ago period -- was a strong 124%. A rate well above 100% indicates the company is winning a bigger share of existing customers' wallets.
Helping that is the number of new capabilities that Snowflake brought to market in the previous quarter, doubling from the year-ago period. The fact that a large chunk of existing customers have yet to use its AI tools indicates there is still a massive cross-selling opportunity.
Stronger growth is on the cards
Analysts are expecting Snowflake's earnings to jump 40% in the current fiscal year. But it did much better than that in the first quarter, so it could outpace Wall Street's expectations with its fast-growing revenue pipeline. Remaining performance obligations (RPO) increased 34% year over year in the fiscal first quarter to $6.7 billion, which outpaced its revenue growth by 8 percentage points, so it's signing new contracts faster than it can fulfill them.
With existing customers spending more money, its adjusted operating margin increased by 5 percentage points year over year, giving its earnings a boost. There is a strong possibility this trend will continue because of the growing adoption of AI services in the cloud -- the reason Snowflake expects its total addressable market to increase to $342 billion by 2028.
So earnings growth should accelerate, as the following chart shows:
SNOW EPS Estimates for Current Fiscal Year data by YCharts; EPS = earnings per share.
If you are looking for a hot growth stock that's benefiting from the adoption of AI, Snowflake seems like an ideal candidate, with improving earnings power that could translate into more upside.
