Snowflake Stock Faces Challenges but Remains Promising for Future Growth
Snowflake‘s (NYSE: SNOW) stock experienced a remarkable rise following its IPO in September 2020. Opening at $120, it surged to $245 on its first trading day and reached a peak of $401.89 in November 2021. Today, however, Snowflake’s stock trades at approximately $170—a decline attributed to a slowdown in growth, mounting losses, and rising interest rates which have impacted lofty valuations. Notably, key IPO investors have pulled back: Salesforce (NYSE: CRM) divested most of its stake in 2022, while Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) exited entirely in 2024. Additionally, CEO Frank Slootman stepped down in February after leading the company for five years.
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Image source: Getty Images.
Despite these setbacks, Snowflake’s business has shown signs of stabilization over the past year. With this context, could now be the time to invest in this out-of-favor stock for potential long-term gains?
Reasons Behind Snowflake’s Slower Growth
Many large enterprises store their data in different software and platforms, creating silos that hinder swift decision-making. Snowflake aims to solve this issue with its cloud-based data warehouses that unify data and allow third-party applications easy access. Unlike Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT), which package data warehousing into their cloud platforms with the intent of locking in customers, Snowflake allows its warehouses to run on Amazon Web Services, Microsoft Azure, and other infrastructural platforms. This positions Snowflake as a preferable option for businesses that do not want to be tied to a single cloud provider. Furthermore, Snowflake’s flexible consumption models charge customers based on actual usage rather than locking them into long-term subscriptions.
The flexibility Snowflake offered contributed to significant growth following its IPO. Product revenue, which constitutes the bulk of its revenue, more than doubled in both fiscal 2021 and fiscal 2022 (ending January 2022). However, growth slowed, rising by 70% in fiscal 2023 before dropping to 38% in fiscal 2024. The net revenue retention rate—an important metric for gauging growth per existing customer—declined from 168% in fiscal 2021 to 131% in fiscal 2024, as the company attributed this slowdown to wider economic challenges prompting businesses to tighten software budgets.
Snowflake’s Business Outlook Stabilizes
In the last year, Snowflake has seen its revenue growth rate continue to decelerate along with its net revenue retention rate. While this trend suggests maturation, it is essential to note that the company is still expanding and has not stalled completely.
|
Metric |
Q4 2024 |
Q1 2025 |
Q2 2025 |
Q3 2025 |
Q4 2025 |
|---|---|---|---|---|---|
|
Product Revenue Growth (YOY) |
33% |
34% |
30% |
29% |
28% |
|
Net Revenue Retention Rate |
131% |
128% |
127% |
127% |
126% |
Data source: Snowflake. YOY = Year-over-year. Periods are for fiscal years ending Jan. 31.
For the first quarter of fiscal 2026, Snowflake anticipates a year-over-year product revenue increase of 21% to 22%. Overall, analysts predict total revenue will grow by 24%, reaching approximately $4.5 billion for the full fiscal year.
Looking ahead, Snowflake believes that the expanding AI market will fuel its growth as more businesses transfer data to its warehouses for easier access to AI applications. New initiatives, including AI-driven tools like Cortex Analyst and Snowflake Intelligence, are expected to solidify its role as a key platform for developing innovative generative AI services.
Additionally, Snowflake has stabilized its adjusted product gross margins, operating margins, and free cash flow (FCF) margins over the past year through workforce reductions and expense management.
|
Metric |
Q4 2024 |
Q1 2025 |
Q2 2025 |
Q3 2025 |
Q4 2025 |
|---|---|---|---|---|---|
|
Adjusted Product Gross Margin |
78% |
77% |
76% |
76% |
76% |
|
Adjusted Operating Margin |
9% |
4% |
5% |
6% |
9% |
|
Adjusted FCF Margin |
42% |
44% |
8% |
9% |
43% |
Data source: Snowflake.
Looking Ahead: Is Snowflake Still a Worthwhile Investment?
As challenges persist, investors may continue to question whether now is an opportune time to invest in Snowflake. Strong fundamentals and strategic direction indicate that the company remains a player in the data warehousing market, particularly as the demand for cloud solutions and AI services continues to rise.
Snowflake Investment Analysis: Is It Worth Your $1,000?
Analysts predict that Snowflake’s adjusted earnings per share will grow by 39% in fiscal 2026. However, at its current valuation, significant growth is already factored in, with the stock priced at 169 times its forward adjusted earnings and 13 times this year’s sales.
Consider an investment of $10,000 in Snowflake, assuming it maintains a strong compound annual growth rate (CAGR) of 15% from fiscal 2025 to fiscal 2045. By the end of this period, Snowflake’s revenue could reach $60 billion. If the stock trades at a favorable 10 times sales, it might achieve a market cap of $600 billion. This scenario reflects a tenfold increase, potentially turning your initial investment into $100,000. While such a return over two decades is appealing, it may not be sufficient to set you up for life. Nevertheless, Snowflake could serve as a valuable component of a diversified, growth-focused portfolio for long-term investors.
Should You Invest $1,000 in Snowflake Right Now?
Before making a purchase in Snowflake, it’s essential to consider the following:
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John Mackey, the former CEO of Whole Foods Market, which is an Amazon subsidiary, serves on The Motley Fool’s board of directors. Leo Sun holds positions in Amazon and Berkshire Hathaway. The Motley Fool has investments in and recommends Amazon, Berkshire Hathaway, Microsoft, Salesforce, and Snowflake. The Motley Fool also recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool adheres to a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.
