For part of 2025, shares of AI data cloud specialist Snowflake (SNOW 0.69%) gained significant momentum as the stock was viewed as an artificial intelligence beneficiary. After all, the company's already rapid top-line growth rate accelerated significantly in its fiscal second quarter of fiscal 2026 (the period ended July 31), as management told investors in the quarter's earnings release that Snowflake has "enormous opportunity ahead" as it capitalizes on "its full potential through data and AI."
But with the company's fiscal Q2 year-over-year product revenue growth rate of 32% decelerating to 29% growth in fiscal Q3, and with management guiding for a further slowdown in fiscal Q4, investors are likely doubting whether the company can see the same type of accelerating momentum that Wall Street darling AI data platform company Palantir has seen in recent quarters. Additionally, Snowflake's massive quarterly losses probably aren't helping the narrative either.
However, with shares down 25% already in 2026 and 58% below their all-time high, is now a good time to buy the stock? After all, this is a fast-growing business, and AI is already providing a tailwind.
Image source: Getty Images.
Product revenue shows momentum
Snowflake's fiscal third-quarter revenue was $1.21 billion, up 29% year over year, driven almost entirely by 29% year-over-year growth in product revenue, which came in at $1.16 billion -- representing almost all of the company's revenue.
Helping fuel this growth were both increased customer usage and new customers. The company ended the period with 688 customers contributing more than $1 million in trailing-12-month product revenue, up 29% year over year.
Additionally, Snowflake's net revenue retention rate, which compares product revenue (recognized based on product usage) from a customer cohort over the trailing two years, was an impressive 125% as of the end of the period.
"Snowflake is the cornerstone for our customers' data and AI strategies, driving real business impact at scale," said Snowflake CEO Sridhar Ramaswamy in the company's fiscal third-quarter earnings release.
Strong demand signals
Additionally, the company has seen impressive momentum in some key metrics that provide a window into demand trends.
Snowflake's remaining performance obligations (RPO) as of the end of fiscal Q3 totaled $7.88 billion, up 37% year over year. Of course, since Snowflake records revenue based on usage rather than contracts, this contracted balance does not reflect when customers will consume or whether they will use more than contracted capacity. But it's still a useful figure, suggesting there is rapidly growing customer demand for Snowflake's data cloud platform.
In addition, the company is seeing especially strong momentum for some of the new AI figures on its platform. The company's enterprise AI agent Snowflake Intelligence, for example, saw the "fastest ramp in product adoption" in Snowflake's history, Ramaswamy said in the company's fiscal third-quarter earnings call.
1 red flag
With such strong growth, why is the stock in the doldrums? In addition to revenue growth decelerating last quarter, the biggest concern for most investors is likely Snowflake's lack of profitability.
Sure, on an adjusted basis, Snowflake's bottom-line momentum is notable. It reported a non-generally accepted accounting principles (non-GAAP) product gross margin of 76% in fiscal Q3 and an adjusted operating income of $131.3 million (11% of revenue). This adjusted operating income is up from $58.9 million in the year-ago quarter (6% of revenue).
In addition, Snowflake's business is cash generative, with adjusted free cash flow rising from $$86.8 million in the year-ago quarter to $136.4 million.
NYSE: SNOW
Key Data Points
But Snowflake's stock-based compensation, which is excluded from non-GAAP figures, is weighing heavily on its GAAP profitability. The company reported a net loss of more than $1 billion for the trailing nine months ended Oct. 31 -- worse than its $963 million net loss in the same period last year.
Overall, I don't think the stock's growth and profitability profile justifies its market capitalization of about $57 billion as of this writing. For me to change my mind, Snowflake would have to report both a significant acceleration in top-line growth and demonstrate a clear path to substantial GAAP profits. While the former is possible, the latter is unlikely -- at least not anytime soon.
