Snowflake Earnings: AI Products Drive Growth Outperformance Through Larger Account Sizes

Key Morningstar Metrics for Snowflake

• Fair Value Estimate
  : $284
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : None
• Morningstar Uncertainty Rating
  : Very High

What We Thought of Snowflake’s Earnings

Snowflake SNOW maintained its extraordinarily strong artificial intelligence-led growth momentum in the second quarter. Total revenue growth accelerated to 35%, easily beating last quarter’s 30% guidance. Non-GAAP operating margin of 15.3% was also 280 basis points higher than guidance.

Why it matters: Adoption of Snowflake’s AI offerings, Cortex Code, or CoCo, and CoWork, came faster than we expected. They are both new products introduced in 2026. Now, more than 60% of Snowflake accounts use CoCo, and nearly 40% use CoWork. CoCo added over 2,000 clients during the quarter.

• CoCo and CoWork are expanding the average size of each account. The number of customers spending at least $1 million annually with Snowflake more than doubled over the past three years, while total customer count grew 70% over the same period.
• Snowflake’s net revenue retention was resilient at 126%. We believe customers’ strong interest in Snowflake’s AI products will likely keep NRR elevated, underpinning our 32% revenue growth forecast over the next three years.

The bottom line: We raise our fair value estimate for no-moat Snowflake to $284 from $255, as we incorporate a stronger AI tailwind that benefits both revenue growth and margin improvement. Shares shot up 23% after earnings and look overvalued to us.

• Our fair value increase reflects Snowflake’s improving position as an all-in-one data platform that supports agentic AI. We think the company’s recent outperformance primarily comes from the growing enterprise AI market rather than its unique competitive advantage.
• In the long term, as enterprise exuberance around agentic AI fades, we expect tougher competition for Snowflake, which will test its elevated valuation.

Key stats: Management’s goal of GAAP profitability by the fourth quarter of fiscal 2028 appears ambitious unless share-based compensation as a percentage of revenue drops to around 20%.