Snowflake knocks it out the park with a stellar earnings and revenue beat

Snowflake Inc. crushed the market’s expectations as it delivered solid second-quarter financial results today, before raising its outlook for the fiscal year.

The results, which come in the wake of strong reports by Salesforce Inc. and Workday Inc. last week, further undermine those who claim software companies are in danger of disruption from artificial intelligence agents.

The cloud data warehouse provider reported earnings before certain costs such as stock compensation of 62 cents per share, well ahead of Wall Street’s forecast of just 45 cents. Revenue for the period jumped 35%, to $1.55 billion, surpassing the analyst target of $1.48 billion. Many had expected Snowflake’s growth to decelerate from the 33% rate it registered three months ago.

The company also issued strong guidance for the rest of the year, saying that it sees its product revenue reaching $6.1 billion in fiscal 2026, which would equate to growth of 36%. Its product revenue excludes the much smaller services business unit.

Executives also forecast an adjusted operating margin of 14.5%, up from just 10% in 2026 and ahead of its earlier guidance of 13.5%. Snowflake is still unprofitable, but it is getting closer to changing that. It recorded a net loss of $192.7 million in the quarter, improving from a $297.9 million in the same period one year ago.

On a conference call with analysts, Snowflake Chief Executive Sridhar Ramaswamy (pictured) said the company is on track to finally break even during the next fiscal year. Those comments, along with the strong numbers from the report, were clearly music to the ears of investors, as Snowflake’s stock shot up more than 22% in extended trading.

Snowflake, which allows businesses to centralize their data in a cloud data warehouse where it can easily be analyzed, has long been prone to massive stock price swings in the wake of its quarterly reports. Its shares had gained 39% in the year to date prior to today’s report, but most of those gains came on a single day in May, when it delivered its first-quarter results, also surpassing expectations.

However, the stock can be volatile. In the period from October to April, Snowflake’s market capitalization fell by more than half on rising fears among investors that software companies were under threat from the emergence of autonomous AI agents. The theory is that as more organizations come to use AI agents to automate software development, they’ll have less need for software platforms like Snowflake, as they’ll simply be able to vibe code their own. However, today’s results suggest that the opposite is true.

During the quarter, Snowflake added 692 new customers, up 32% from a year ago. Many of those new customers are not only migrating their data to Snowflake’s cloud data warehouse, but also using the company’s AI tools to power their own AI agents. In an interview with MarketWatch, Ramaswamy said the results show that enterprise AI transformations are compounding the company’s advantage. “More and more customers are migrating their data and data work to Snowflake so that they have an AI-ready data foundation,” he explained.

Its AI tools have seen strong momentum too. On the conference call, Ramaswamy said that the company’s coding agent CoCo, which launched in February, is now being used by more than 9,100 customer accounts. Meanwhile, Snowflake CoWork, which helps businesses to quickly analyze their data for insights, has grown to more than 5,800 accounts. “Both of these products are achieving rapid penetration within our customer base,” the CEO insisted.

Snowflake’s biggest competitors are not AI agents, but fellow software companies such as Microsoft Corp. and Databricks Inc. However, some analysts point to another AI threat to Snowflake – the growing efforts by some of its customers to use large language models to help optimize their spending on platforms like Snowflake, to drive greater efficiency.

The worry is that this could lead to enterprises spending less money on Snowflake’s platform overall, hurting its revenue, but Ramaswamy said he doesn’t see it that way. Rather, he believes it could actually be an opportunity for the company to grow, as it means customers will be getting more value for their money.

“We genuinely think that having our customers use our platform effectively and efficiently is a key ingredient for our future success,” he insisted. He pointed out that the company already offers its own tools to help customers avoid spending unnecessary money on the platform.

Nonetheless, Snowflake will remain under pressure for some time to come. The company’s stock is widely considered to be vulnerable because it trades at 15 times its projected revenue over the next 12 months, whereas the iShares Expanded Tech-Software Sector exchange traded fund’s average is just 7.4 times forward revenue. That suggests there’s a large premium on Snowflake’s stock, which could quickly erode if it’s unable to meet Wall Street’s lofty expectations going forward.

Photo: Robert Hof/SiliconANGLE