With its cloud-based data warehousing solutions, Snowflake Inc. (NYSE:SNOW) has made a name for itself as a leader in data processing, analytics, and storage. Valued at a market cap of approximately $41.4 billion, Snowflake allows businesses to scale their data management needs efficiently. The company’s architecture separates compute and storage functions, offering clients flexibility and cost optimization—one of the reasons for Snowflake’s strong competitive position. However, despite these advantages, Snowflake stock has experienced a significant drop, currently down 70% from all-time highs. With earnings on the horizon, is now the right time to invest in Snowflake stock?
Snowflake’s Performance and Q3 Earnings Expectations
As Snowflake prepares to report earnings on Wednesday, Nov. 20, analysts anticipate revenue of $897 million for fiscal Q3 2025, with adjusted earnings per share (EPS) at $0.15. Last year, the company reported revenue of $734.2 million and an adjusted EPS of $0.25. While projected revenue growth is 22%, Snowflake’s EPS is expected to decline by 40% year-over-year, reflecting the company’s slower revenue growth and increased investments in technology.
Snowflake’s tepid 2024 performance has been partially attributed to its decelerating revenue growth. In Q2, Snowflake reported only a 22% increase in revenue, a significant drop from 35.5% growth in the year-ago period. However, Snowflake remains optimistic about its fiscal 2025 outlook, raising its revenue forecast to $3.36 billion. Despite positive guidance, Snowflake stock declined as profitability expectations did not rise alongside revenue projections.
AI Investments and Partnerships Boost Prospects
A notable development for Snowflake this year is its heavy investment in artificial intelligence (AI). Snowflake has been expanding its AI capabilities, including developing its own large language model, Snowflake Artic, to enhance customer engagement and drive revenue growth. Recently, Snowflake announced a partnership with Meta Platforms (NASDAQ:META) to integrate Meta’s Llama models, a move expected to boost customer retention by enhancing the user experience across Snowflake’s platform.
Furthermore, Snowflake’s Data Marketplace, which enables users to access live datasets, has proven to be an essential tool for companies in sectors ranging from finance to healthcare. This diversified portfolio of offerings has allowed Snowflake to grow rapidly, from $265 million in revenue in fiscal 2020 to over $3.2 billion in the last twelve months. Analysts believe that Snowflake’s investments in AI and partnerships with major tech players could help reignite its growth momentum.
Is Snowflake Stock Undervalued?
With Snowflake’s stock significantly underperforming the broader market, some investors may question if SNOW is currently undervalued. The company has a strong free cash flow (FCF) profile, generating $847.5 million in FCF over the past 12 months. Snowflake’s FCF margin sits at an impressive 26.4%, and analysts expect this margin to improve to around 30% by fiscal 2026.
Assuming Snowflake reaches its fiscal 2026 sales target of $4.34 billion and achieves a 30% FCF margin, its FCF could reach approximately $1.3 billion. If SNOW trades at 50 times trailing FCF, the company’s market cap could rise to $65 billion, representing a 50% upside from its current valuation.
Analyst Recommendations and Price Targets
Analyst sentiment around Snowflake remains mostly positive, with 25 out of 41 analysts recommending a “strong buy” for Snowflake stock. The average target price sits at $169.69, suggesting an upside potential of 41% from current levels. However, it is worth noting that some analysts remain cautious due to the potential impact of competition in the cloud data sector and Snowflake’s decelerating growth rate.
Risks to Consider
Despite Snowflake’s strong fundamentals and growth potential, there are some risks that investors should be aware of. For instance, the company was linked to a major data breach earlier this year, which affected clients like AT&T (NYSE:T) and Live Nation (NYSE:LYV). While Snowflake has since strengthened its security protocols, any further breaches could impact client trust and slow down growth.
Additionally, Snowflake operates in an increasingly competitive environment, with rivals like Amazon Web Services (AWS), Google Cloud, and Microsoft Azure vying for market share. As Snowflake continues to invest in growth, maintaining profitability amid competition will be a critical challenge.
Conclusion: Should You Buy Snowflake Stock?
Snowflake stock presents a unique opportunity for investors willing to look beyond recent volatility. With significant advancements in AI and strategic partnerships with companies like Meta, Snowflake is positioning itself as a long-term leader in the cloud data market. However, given recent stock underperformance and heightened competition, investors may want to adopt a cautious approach.
For those already holding Snowflake stock, the company’s long-term outlook and impressive free cash flow generation offer reasons to remain optimistic. New investors, on the other hand, may want to wait until after earnings to assess whether Snowflake’s growth initiatives translate into tangible performance gains.
