Snowflake Inc. (NYSE:SNOW) has returned over 168% over the past six months, compared to a 21.25% return for the Insider Monkey Billionaire Index and 14% for State Street SPDR S&P 500 ETF Trust, as of October 12.
Snowflake has a lot going for it. Companies need somewhere to store, organize, and analyze their data, and AI is making that data more valuable. Snowflake wants to be the platform that connects enterprise data with the AI models and applications businesses use. If it can pull that off, customers could end up spending considerably more on its products.
But there’s a catch. Snowflake is competing against some of the biggest technology companies in the world, and its stock already prices in a lot of future growth. At 169.49x forward earnings, investors aren’t just betting on a good cloud data business. They’re betting that Snowflake can turn its position in enterprise data into a much larger and more profitable business.
On June 29, we wrote an article about 10 AI stocks that are surging. Snowflake was on it, and the number 1 stock on the list has returned almost 50% since.
Where Snowflake’s Moat Comes From
Snowflake’s advantage starts with the complexity of enterprise data. Large companies have years of information spread across different systems, with teams relying on that data for reporting, forecasting, fraud detection, and other critical work. Once a company builds its data pipelines and workflows around Snowflake, moving to another platform isn’t as simple as cancelling a subscription. The migration can be expensive, time-consuming, and risky.
That gives Snowflake some real switching costs. Its platform also lets customers share data with other organizations without having to move or duplicate it in the traditional way. The more useful these connections become, the more valuable the platform could be to customers.
But Snowflake Inc. can’t take those switching costs for granted. Its support for open data formats is good for customers, but it also means they have more freedom to move their workloads if they find a better deal elsewhere. And Snowflake isn’t the only company chasing this business. Databricks is going after many of the same customers, while Amazon, Microsoft, and Google have an advantage Snowflake can’t easily match: existing relationships with companies already using their cloud services.
SNOW ranked 5th in our list of the 11 Best Agentic AI Stocks to Buy Right Now. To see which stock outranked it, click HERE.
AI makes this competition more interesting. Businesses need reliable data and proper governance if they want AI systems to produce useful results. Snowflake is building products such as CoCo and CoWork around that opportunity, while allowing customers to choose between different AI models. In theory, that neutrality makes Snowflake attractive to companies that don’t want to commit to a single AI provider.
The early signs are good. Snowflake’s product revenue grew 37% to $1.49 billion in Q2 FY2027, and existing customers are still spending more, with net revenue retention at 126%. CoCo is now used by more than 9,100 accounts, while CoWork has reached 5,800. That’s encouraging, but the real question is whether these products can turn into a lasting advantage. We don’t yet have enough evidence of how much revenue they’re bringing in, and Snowflake still has to prove it can keep those customers spending as competitors roll out their own AI tools.
SNOW ranked 6th in our list of the 10 Best Cloud Computing Stocks to Buy According to Billionaires. To see which stock outranked it, click HERE.
Valuation: Growth Alone Won’t Be Enough
Snowflake raised its FY2027 product revenue growth outlook to 36%, with expected product revenue of $6.07 billion. That’s strong growth, especially at its current scale. The question is how much investors should pay for it.
At 169.49x forward earnings, the stock is priced for substantial future profit growth. Snowflake doesn’t have a meaningful trailing P/E because it remains unprofitable on a GAAP basis. Its adjusted numbers look much better, but investors shouldn’t ignore the difference. In Q2, the company reported a GAAP operating loss of $263 million, compared with non-GAAP operating income of $237 million. Stock-based compensation is an important part of that gap. It doesn’t use cash in the same way as salaries paid today, but it still has a cost for shareholders through dilution.
Snowflake expects a 14.5% non-GAAP operating margin and a 23% adjusted free cash flow margin in FY2027. As revenue grows, those numbers should improve further. The bigger question is how much of that growth will eventually show up in GAAP earnings, rather than getting lost in adjustments that leave out costs the company still has to pay.
There’s also a question of how much of the AI opportunity Snowflake can capture. More AI workloads could mean more data consumption and higher customer spending. But if cloud providers bundle competing services, or Databricks wins more of the workloads that matter, Snowflake may find it harder to maintain its growth and pricing power. A large market doesn’t guarantee that one company will capture the returns investors expect.
Snowflake’s business seems solid, and AI could make its platform more valuable over time. But at 169.49x forward earnings, the price may just be too much. It could become more attractive if GAAP profits get closer and AI translates into sustained customer spending. Snowflake has plenty of room to grow, but the stock leaves very little room for things to go wrong.
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Market Sentiment
The number of funds holding the stock rose from 80 in Q1 to 103 in Q2, according to Insider Monkey’s database, while the value of their positions increased from approximately $2.91 billion to $7.50 billion. That’s a meaningful increase in reported institutional exposure. It suggests more hedge funds were willing to own the stock, although it doesn’t tell us whether the current valuation offers an attractive entry point.
While we acknowledge the risk and potential of SNOW as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SNOW and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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This article is originally published at Insider Monkey.
