Snowflake’s stock price fell despite another good quarter for the company.
The company’s growth is driven by the growing need for AI to have clean, well-organized data.
The stock appears to be reasonably valued after the pullback.
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Snowflake (NYSE: SNOW) Share prices are falling lately, even though the company last week reported strong third-quarter fiscal 2026 results and issued an optimistic outlook. Despite the drop, shares are still trading up almost 47% for the year.
For those unfamiliar with Snowflake, it is a cloud-based data storage and analytics company. Its architecture separates storage from computing, allowing its customers to store data and then process it seamlessly across multiple cloud computing providers. This allows your customers to quickly and securely access and share data in real time. The company was originally rated as a potential loser in artificial intelligence (AI), given the belief that AI does not need structured data. However, as time has passed, it has become clearer that AI works best with clean, organized data.
Let’s take a closer look at Snowflake’s third-quarter results and outlook to see if this drop is a buying opportunity.
Image source: Getty Images.
Snowflake once again saw strong sales growth, with quarterly revenue increasing 29% year over year to $1.21 billion, beating the analyst consensus of $1.18 billion. Product revenue also increased 29% to $1.16 million. Adjusted earnings per share (EPS) rose to $0.35 from $0.20 a year ago, beating the consensus of $0.31.
Its net income retention rate was 125% in the trailing 12 months, the same as in the second quarter. A number greater than 100% indicates that existing customer usage is increasing after accounting for customer churn. For a company the size of Snowflake, this is a very impressive figure.
The company attributed the growth to AI and said its AI revenue reached $100 million in the quarter, a full quarter ahead of its projections. More than 1,200 customers are now using its AI-powered Snowflake Intelligence solution to create AI agents. It is a consumer business, so growth is driven by increased usage.
Snowflake also added a record number of new customers. In the quarter, it gained 615 new customers and said its AI offerings accounted for about half of its bookings. Meanwhile, four of the deals were for more than $100 million. One of those deals was with Anthropic, with whom it signed a $200 million partnership to help bring AI agents powered by Claude to enterprise customers.
The company continues to produce a lot of cash, with adjusted free cash flow of $136.4 million in the quarter. It ended the quarter with $4.4 billion in cash and investments and $2.3 billion in debt after buying back more than $230 million in stock.
Looking ahead, Snowflake raised its full-year product revenue guidance to approximately $4.446 billion, up from previous guidance of $4.395 billion. The new outlook represents year-over-year growth of 28%. It maintained its guidance for adjusted operating margins of 9%.
For the fiscal fourth quarter, it forecast product revenue of between $1.195 billion and $1.2 billion, representing growth of about 27%. Look for tight operating margins of 7%.
While its revenue growth slowed slightly from the second quarter, Snowflake is firing on all cylinders. Both existing clients are being seen significantly increasing their spending, while adding a record number of new clients. The company is doing a great job innovating and its AI revenue growth is skyrocketing.
Meanwhile, its partnership with Anthropic underscores the importance of having access to clean, organized data, especially as companies begin to adopt AI agents. This reduces AI hallucinations, which is vitally important as you don’t want a rogue AI agent acting on bad data.
From a valuation perspective, the stock trades at a forward price-to-sales (P/S) multiple of 14 times analyst estimates for the next fiscal year. I think it’s a reasonable valuation given its growth, but I’m not going to back down from buying shares this dip either. However, it’s certainly a stock to keep on your radar if it continues to fall.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Snowflake. The Motley Fool has a disclosure policy.
Stocks of snowflakes melt. Is it time to buy falling stocks? was originally published by The Motley Fool
