What Happened?
Shares of data warehouse-as-a-service Snowflake (NYSE: SNOW) jumped 7.3% in the morning session as the debate around the future of AI continues following the unveiling of DeepSeek. The market is recalibrating and rotating to stocks that are not only more insulated if DeepSeek prevails in the AI arms race but to stocks that may actually benefit no matter who wins that race. The proliferation of AI will be a general tailwind to demand for cybersecurity, big data, and automation software.
For example, AI can make bad actors better and make the search for vulnerabilities faster. This means that enterprises will need more of what CrowdStrike, Zscaler or Cloudflare offer. Additionally, more data is only valuable if the mountains of numbers, text, and videos can lead to actionable insights. AI can do exactly that, meaning that enterprises will get more value from platforms like Snowflake and MongoDB. Similarly, AI can make automation software more valuable by making it more adaptive, which means that customers can extract more platforms from platforms like ServiceNow and Appian.
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What The Market Is Telling Us
Snowflake’s shares are somewhat volatile and have had 14 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 2 months ago when the stock gained 32.4% on the news that the company reported a strong "beat and raise" quarter. It was encouraging to see Snowflake exceed analysts' revenue expectations this quarter with a net revenue retention rate (NRR) that didn't fall at all from last quarter. During the earnings call, Snowflake emphasized its commitment to simplifying data workflows and integrating AI capabilities, such as Snowflake Cortex. These initiatives are driving competitive displacement and increasing customer adoption.
Additionally, new products like Snowpark are contributing to revenue growth. Snowpark is expected to account for roughly 3% of total product revenue.
On the AI front, Snowflake reported over 1,000 generative AI use cases deployed in production, and 3,200 customers utilizing its platform for AI and machine learning applications. This is another aspect of the business with a strong potential to accelerate growth as customers recognize the value that AI adds to their operations.
Moving to the bottom line, operating margin in the quarter beat, and combined with the top-line improvements and cost efficiencies, EPS easily surpassed analysts' estimates.
Looking ahead, Q4 product revenue guidance was ahead of analysts' expectations, adding to the good news. For the full year, guidance for product revenue, gross margin, and operating margin were all raised.
Overall, this was a very good quarter, a relief for a company that has shown some uneven earnings performance in the last year.
Snowflake is up 18.7% since the beginning of the year, but at $187.03 per share, it is still trading 20.8% below its 52-week high of $236 from February 2024. Investors who bought $1,000 worth of Snowflake’s shares at the IPO in September 2020 would now be looking at an investment worth $736.54.
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