After Earnings, Is Snowflake Stock a Buy, a Sell, or Fairly Valued?

Snowflake released its second-quarter earnings report for fiscal 2026, on Aug. 27, 2025. Here’s Morningstar’s take on Snowflake’s earnings and stock.

Key Morningstar Metrics for Snowflake

• Fair Value Estimate: $177
• Morningstar Rating: ★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Snowflake’s Q2 Earnings

Snowflake’s second-quarter year-over-year revenue growth of 31.5% accelerated 530 basis points sequentially, highlighting strong client interest in data infrastructure modernization. Non-GAAP operating margin also expanded 240 basis points sequentially to 11.2%, thanks to efficiency gains.

Why it matters: Snowflake’s core products continue to benefit from secular investments in artificial intelligence. Constant product innovation, supported by 250 new capability launches over the past six months, ensures that Snowflake remains competitive amid intense competition among analytical databases.

• Most notably, Snowpark Connect’s Apache Spark support should make Snowflake a more attractive choice for computational data workloads, an area in which its rival, Databricks, specializes.
• As more enterprise customers recognize the potential of agentic AI, data platform suppliers like Snowflake are poised to expand, as analytical databases are a key part of the infrastructure for AI agents.

The bottom line: We raise our fair value estimate for no-moat Snowflake to $177 from $150, as we incorporate better-than-expected growth momentum of its data and AI offerings.

• Despite acceleration in total customer count growth, Snowflake hired more salespeople in the past two quarters than in the prior two years combined. We believe Snowflake’s execution of its go-to-market strategy is key to competing with Databricks and data platforms from hyperscalers.
• We like the continuous growth of data sharing on Snowflake Marketplace. Forty percent of customers are now exchanging their data, which brings Snowflake a step closer toward building an ecosystem that embodies network effects.
• Snowflake stock looks overvalued, and we think the market is underestimating the competitive pressure Snowflake faces.

Coming up: Management increased its product revenue guidance for fiscal 2026 by $70 million to $4.395 billion. Non-GAAP operating margin guidance was also up 100 basis points to 9%, reflecting better operating leverage.

Fair Value Estimate for Snowflake

With its 2-star rating, we believe Snowflake’s stock is overvalued compared with our long-term fair value estimate of $177.

We expect Snowflake to achieve a five-year compound annual growth rate of 24%, mainly driven by strong demand for data lake and data warehouse products from enterprise customers to build their AI infrastructure. In our view, it will take decades for Snowflake and other data platform vendors to fully penetrate the targeted customer group, as it takes time to set up a new enterprise system and configure the ecosystem surrounding it. As customer utilization continues to climb, Snowflake and its competitors should enjoy an extended growth runway beyond the next decade.

We think Snowflake’s $342 billion total addressable market forecast for calendar year 2028 is reasonable, and additional opportunities might exist among public sector and higher education customers. That said, our estimate shows a less than 3% total market share for Snowflake by 2028, which should be similar to the company’s current market share level. Incremental consumption from existing customers should serve as the main driver of Snowflake’s revenue growth. We think Snowflake’s professional services are crucial to help the company land new logos, and the segment’s annual revenue growth should remain in the teens through fiscal 2030 while narrowing its loss.

We believe Snowflake’s margin will expand quickly as the company gains scale, with gross margin rising 10 percentage points over the next 10 years. We expect to see a positive GAAP operating margin and net profit margin for the first time in fiscal 2031, and they should continue to expand afterward, reaching 18% and 16%, respectively, by fiscal 2035. We estimate a similar trend for the adjusted operating margin, which should increase from 6% in fiscal 2025 to 33% in fiscal 2035.

Read more about Snowflake’s fair value estimate.

Economic Moat Rating

We assign Snowflake a no-moat rating because of the intense competition in the data warehouse and data lake space. Despite being one of the leading data platforms on the market, we believe it is too early to call out Snowflake as a winner. Snowflake currently boasts a 126% net retention rate, which should support the company’s high growth over the next few years. However, we need more evidence that Snowflake’s technology road map, use cases, and customer base are mature enough to underpin high switching costs as a moat source. Although we also see elements of cost advantage and network effect across Snowflake’s offerings, we don’t think the company, overall, has developed a competitive advantage that gives us enough confidence to award a narrow moat.

Snowflake is one of the first companies to commercialize a cloud-agnostic data lake and data warehouse, allowing users to query and process data on a unified platform. Given that most organizations adopt a multicloud strategy for operational redundancy, using a centralized data platform becomes necessary to unify different data silos for effective query and governance. We believe online analytical processing databases like Snowflake should eventually become an essential part of the enterprise IT tech stack, sitting next to online transactional processing databases and acting as an intermediary between servers that store data and applications that use data for analytical purposes.

We think there are preliminary signs of network effect with Snowflake Marketplace. The marketplace has two segments—data applications and datasets—and we only see some network effect on the data applications side. In 2023, Snowflake launched its Native App Framework that allows developers to build and distribute data applications. Adding data apps to Snowflake Marketplace benefits customers because of faster app deployment and easier data access, and it also brings monetization opportunities to developers. Therefore, we see the potential for a two-sided network effect between users and developers as Snowflake’s data app ecosystem continues to expand. However, Snowflake Native App Framework is a relatively new offering. We don’t think the potential network effect we see across Snowflake native apps will be strong enough to support an economic moat anytime soon.

Read more about Snowflake’s economic moat.

Financial Strength

We believe Snowflake is financially stable. The company’s cash and equivalents balance has been around $4 billion since its IPO, and non-GAAP free cash flow has been positive since fiscal 2022. However, Snowflake has a history of heavily using stock-based compensation to lift its cash flows. In fiscal 2025, Snowflake’s total stock-based compensation expense surpassed $1.5 billion, or 43% of the company’s revenue, and the size of Snowflake’s stock-based compensation has been above 40% of revenue since the company’s IPO. Although we forecast a gradual decline of stock-based compensation as a percentage of revenue to the midteens by fiscal 2035, long-term investors should consider the potential dilutive effect of Snowflake’s heavy stock-based compensation usage.

Snowflake also issued $2.3 billion of convertible senior notes in September 2024. Despite a minimal effective interest rate, the potential conversion, when the notes are due in 2027 and 2029, can add to the dilutive effect of Snowflake’s stock-based compensation. We think it is unlikely that Snowflake needs to tap into the debt market for its day-to-day operations in the long term, as the business already generates positive operating cash flows.

Read more about Snowflake’s financial strength.

Risk and Uncertainty

We assign Snowflake a Very High Morningstar Uncertainty Rating because we believe the data warehouse and data lake competitive landscape can change very quickly. Although Snowflake is one of the leading data platform solutions today, there is no guarantee that the company can keep its leadership as the market continues to evolve over the next few decades.

We think Snowflake’s relationship with hyperscalers is becoming trickier as the company grows into a well-known brand in the database field. Over the years, Snowflake has formed a “frenemy” relationship with Amazon Web Services, Microsoft Azure, and Google Cloud. Public cloud operators need third-party offerings like Snowflake to enhance their marketplace ecosystems and reinforce their network effects. Snowflake also relies on the cloud infrastructure provided by hyperscalers to operate its business. Although Amazon, Microsoft, and Google are much bigger players in the database market compared with Snowflake, they can still choose to step up their research and development and marketing investments for Redshift, Azure Synapse, and BigQuery, which might threaten the future growth trajectory of Snowflake.

Snowflake’s current success is built on top of public cloud users’ demand to break down data silos. However, the data silos Snowflake is trying to address can also disappear one day, undercutting enterprises’ need to adopt a third-party platform for centralized data management. If that happens, it can pose a material value destruction risk for Snowflake in the long term. We see early signs of this trend for an open data ecosystem with the rise of Apache Iceberg, a tool that lowers the barrier for users to manage and interact with data across different systems. While it requires tremendous coordination among hyperscalers to open up their ecosystems and adopt a unified data management framework, it is a potential risk that long-term investors of Snowflake should keep in mind.

Read more about Snowflake’s risk and uncertainty.

SNOW Bulls Say

• The total addressable market for data warehouse and data lake products should experience double-digit annual growth over the next decade, and Snowflake is one of the leaders in the segment.
• Snowflake’s addition of machine learning and artificial intelligence functionalities should incentivize existing customers to put more data workflows on the platform.
• Snowflake is the only established software-as-a-service database offering on the market, which caters to the needs of organizations that do not have robust internal IT expertise.

SNOW Bears Say

• Competition with Databricks’ and hyperscalers’ data warehouse products continues to intensify, leading to heavy marketing and R&D pressure for Snowflake.
• Snowflake’s speed of gaining new logos can slow down as the company shifts its focus to incremental consumption from existing customers, limiting the monetization potential of Snowflake Marketplace.
• Snowflake’s valuation is demanding. Any slowdown in growth could be devastating to the valuation.

This article was compiled by Isela Meraz.