Snowflake Stock Analysis: Strong AI Momentum Meets Accelerating Growth

Snowflake Inc. (NYSE: SNOW) reported impressive financial results for the second quarter of fiscal 2027 (ended July 31, 2026), showcasing accelerated product revenue growth and robust enterprise adoption of its enterprise AI features.

Strong Revenue Growth Continues to Accelerate

Snowflake generated $1.55 billion in total revenue during Q2, up 35% year over year. Product revenue reached $1.49 billion, increasing 37% year over year, marking the company’s third consecutive quarter of accelerating product revenue growth, driven by strength in both the core data platform and a meaningful step-up in AI revenue. Professional services and other revenue was $54.93 million, almost flat year over year (vs $54.47 million).

The acceleration in product revenue is particularly important because Snowflake operates a consumption-based model. Rather than relying primarily on fixed subscription revenue, Snowflake's product revenue reflects customers' actual consumption of compute, storage, and data-transfer resources.

Mixed Margins

GAAP gross profit increased to $1.04 billion, compared with $773.15 million a year earlier. However, gross margins declined modestly. GAAP gross margin fell from 68% to 67%, while non-GAAP gross margin declined from 73% to 72%. GAAP product gross margin also declined slightly to 71% from 72%, while non-GAAP product gross margin contracted from 76% to 75%.

GAAP operating margins remain negative, at -17%, and GAAP net income remains negative. The company therefore continues to rely heavily on non-GAAP profitability metrics when evaluating its operating performance.

Snowflake expanded its non-GAAP operating margin to 15% from 11%. Non-GAAP operating income increased to $236.99 million, compared with $127.57 million in the prior-year period. Non-GAAP net income rose to $235.31 million, or $0.62 per diluted share, compared with $128.99 million, or $0.35 per share, a year earlier.

Balance Sheet and Cash Flow

Snowflake ended the quarter with $1.71 billion in cash and cash equivalents and $637.51 million in short-term investments. The company also had approximately $2.28 billion of convertible senior notes.

Cash generation improved, with $91.4 million of cash provided by operating activities and $83.8 million of free cash flow during the quarter. Adjusted free cash flow was $92.3 million.

Customer Metrics Remain Strong

The company added 692 net new customers during the quarter, an increase of 32% year over year. It also ended the quarter with 828 customers generating more than $1 million in trailing 12-month product revenue, representing 27% year-over-year growth.

The company's net revenue retention rate was 126%. Remaining performance obligations also remained robust at $9.00 billion, up 30% year over year. However, the company's own disclosure is careful to note that RPO "is not necessarily indicative of future product revenue growth because it does not account for the timing of customers' consumption or their consumption of more than their contracted capacity."

AI Is Becoming a Major Growth Driver

CEO Sridhar Ramaswamy noted that "AI continues to compound our advantages, creating a flywheel effect across the business." CoCo surpassed 9,100 accounts, adding more than 2,000 accounts during the quarter, while CoWork expanded to 5,800 accounts.

Snowflake launched over 330 product capabilities to general availability in the first half of fiscal 2027, up 35% year-over-year. Recent introductions include Cortex Sense for business context and Cortex AI Gateway, which extends AI from insight to action through its integration of Natoma.

Full-Year Guidance Was Raised

Snowflake raised its fiscal 2027 product revenue guidance to $6.07 billion, representing 36% year-over-year growth, compared with its previous forecast of $5.84 billion, or 31% growth. The company also raised its expected non-GAAP operating margin to 14.5% from 13.5%.

For the third quarter, Snowflake expects product revenue of $1.588 billion to $1.593 billion, representing 37% to 38% year-over-year growth. The company expects a non-GAAP operating margin of 15.5%.

SNOW Stock Technical Analysis

From a short-term trading perspective, $360 is the key resistance level to watch. If SNOW can decisively break above $360 and establish support above this level, the next potential upside target is around $385.

However, if the stock fails to hold momentum above resistance, it will likely pull back or profit take to test primary support around $308. If selling pressure pushes the stock below $308, the next major support to watch is approximately $282.