Snowflake (SNOW 2.55%) share prices are sliding lately, despite the company reporting strong fiscal 2026 third-quarter results last week and issuing an upbeat outlook. Despite the drop, the stock is still trading up nearly 47% on the year.
For those unfamiliar with Snowflake, it's a cloud-based data warehousing and analytics company. Its architecture separates storage from compute, allowing its customers to store data and then process it seamlessly across multiple cloud computing providers. This allows its customers to quickly and securely access and share data in real time. The company was originally branded a potential artificial intelligence (AI) loser, given the belief that AI doesn't need structured data. However, as time has passed, it has become clearer that AI works best with clean, organized data.
Let's take a closer look at Snowflake's Q3 results and prospects to see if this dip is a buying opportunity.
Image source: Getty Images.
Snowflake's strong growth continues
Snowflake once again saw robust sales growth, with quarterly revenue climbing 29% year over year to $1.21 billion, topping the $1.18 billion analyst consensus. Product revenue also climbed 29% to $1.16 million. Adjusted earnings per share (EPS) jumped to $0.35 from $0.20 a year ago, coming in ahead of the $0.31 consensus.
Its net revenue retention rate came in at 125% over the past 12 months, the same as Q2. A number above 100% indicates that existing customer usage is increasing after taking into account any customer churn. For a company of Snowflake's size, this is a very impressive number.
The company credited the growth to AI, saying its AI revenue hit $100 million in the quarter, one full quarter ahead of its projections. More than 1,200 customers are now using its AI-powered Snowflake Intelligence solution to build AI agents. This is a consumption business, so the growth is being driven by increased usage.
Snowflake also added a record number of new customers. In the quarter, it landed 615 new customers, and it said its AI offerings accounted for about half of its bookings. Meanwhile, four of the deals were for over $100 million. One of those deals was with Anthropic, with whom it struck a $200 million partnership to help bring Claude-powered AI agents to enterprise customers.
The company continues to produce a ton of cash, with adjusted free cash flow of $136.4 million in the quarter. It ended the quarter with $4.4 billion in cash and investments and $2.3 billion in debt after buying back over $230 million in stock.
Looking ahead, Snowflake raised its forecast for full-year product revenue to approximately $4.446 billion, up from previous guidance of $4.395 billion. The new outlook represents year-over-year growth of 28%. It maintained its guidance for adjusted operating margins of 9%.
For fiscal Q4, it forecast product revenue of between $1.195 billion and $1.2 billion, representing growth of about 27%. It's looking for adjusted operating margins of 7%.
NYSE: SNOW
Key Data Points
Is it time to buy the dip?
While its revenue growth did decelerate slightly from Q2, Snowflake is pretty much hitting on all cylinders. It's seeing both existing customers nicely increase their spending, while also adding a record number of new customers. The company is doing a great job innovating, and its AI revenue growth is soaring.
Its partnership with Anthropic, meanwhile, underscores the importance of having access to clean, organized data, especially as enterprises begin to adopt AI agents. This reduces AI hallucinations, which is of vital importance, as you don't want a rogue AI agent acting on incorrect data.
From a valuation perspective, the stock trades at a forward price-to-sales (P/S) multiple of 14 times next fiscal year's analyst estimates. I think that is a reasonable valuation given its growth, but I'm also not backing up the truck to buy the shares on this dip. However, it is certainly a stock to keep on the radar if it continues to slide.
