Key Points
- Snowflake shares jumped 22% after hours following a Q2 fiscal 2027 earnings report that beat both EPS and revenue estimates by wide margins.
- The company posted 37% year-over-year product revenue growth, 126% net revenue retention, and raised its full-year product revenue guidance to nearly $6.1 billion.
- Wall Street analysts remain largely bullish, with 34 Buy ratings versus six Sell or Hold ratings and roughly 25% implied upside despite shares rising 52% year to date.
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For the first half of 2026, cloud-based data and AI platform provider Snowflake Inc. (NYSE: SNOW) experienced a sustained decline in its share price, a symptom of market skepticism about the firm's ability to both grow quickly and improve its margins.
A revenue model centered on consumption was an asset for Snowflake while cloud infrastructure buildout was at its peak, but it has more recently become a liability as enterprise spending slows and customers try to minimize their compute.
Fortunately for Snowflake, that trend may have turned around, most recently thanks to a significant price pop of 22% in a single after-hours trading session after its latest earnings results. For investors, it's crucial to assess whether this is a one-off or an indication of more positive news to come. With strong revenue retention, accelerating sales, and, yes, improving margins all in play, Snowflake may have given investors confidence in its ability to continue delivering.
Breakout Numbers Could Change Snowflake's Trajectory
The catalyst for Snowflake's one-day rally was its Q2 fiscal 2027 earnings report, which had a number of notable wins for the company. Adjusted earnings per share (EPS) came in at 62 cents, a full 17 cents above what analysts had predicted and 77% higher than the prior-year period's figure. Revenue was nearly $1.6 billion, $70 million ahead of consensus estimates.
Notably, the earnings beat was wider than the revenue one, suggesting that the company has been growing at a faster rate while also improving its profitability metrics, a feat that many investors may not have thought possible for Snowflake up until this time.
Digging deeper into the company's results, it impressed in a number of other ways as well: product revenue climbed by 37% year over year (YOY), operating margin improved considerably, and, crucially, the company reported 828 customers paying more than $1 million annually. Its net revenue retention rate is an impressive 126%.
This last figure may be the most pivotal for Snowflake over the longer term. Existing customers spent 26% more than they did last year, a strong sign of the company's product quality. This means the company can compound sales without necessarily adding any new accounts.
Accelerating Revenue Growth Is a Positive Sign
In product revenue, the 37% YOY growth rate reflects multiple consecutive quarters of acceleration. This prompted Snowflake to raise its full-year product revenue guidance to nearly $6.1 billion, representing about a 36% YOY improvement in this area.
Like with revenue retention, Snowflake's success at picking up its product revenue growth, particularly given its consumption-based model, may be a sign that there is solidifying demand. Coupled with better profitability, Snowflake may finally be able to convince investors that it can win on both revenue and margin fronts.
Looking Ahead: CoCo, AI Transformation, and More
Snowflake's CoCo AI coding agent boosted its total accounts by more than 2,000 during the latest quarter, reaching 9,100 total by the end of the period. This tool could be instrumental in making Snowflake's products stickier across a variety of enterprise data workflows. With CoCo integrated into daily operations, enterprise customers may find switching data platforms cost-prohibitive.
The company's AI products are becoming more impressive, reducing internal marketing content production time from 24 to just two hours. As Snowflake's AI tools become more efficient, the company will not only be better able to keep its own operating costs down, but also help to demonstrate more convincingly to potential customers how effective these products are.
Management's optimism is reflected in rosy guidance looking ahead, but this is also echoed in the way that Wall Street has been viewing SNOW shares. An impressive 34 Buy ratings dwarf six total Sell and Hold ratings, and the firm still has about 25% in upside potential even after shares have climbed by 52% year to date (YTD).
With all this upward momentum, investors might understandably be concerned that Snowflake's valuation is becoming too lofty. With a price-to-sales (P/S) ratio of 25, the company does trade at a premium relative to the market, but it is not the most stretched that Snowflake's valuation has been in recent years.
Ultimately, Snowflake's latest quarter demonstrates that the company is achieving meaningful operational and sales improvements while firming up its customer base and revenue retention. It may give investors further confidence that Snowflake can maintain this momentum going forward.
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