Is Snowflake Stock a Buy Now? The Answer Might Surprise You.

Core Viewpoint - Snowflake's stock surged by 20% following strong quarterly financial results, driven by accelerating revenue growth and a record order backlog, but investors should consider potential risks related to valuation and ongoing losses [1][3]. Financial Performance - Snowflake reported $1.09 billion in product revenue for Q2 of fiscal 2026, exceeding management's guidance of $1.04 billion, representing a 32% year-over-year increase, up from 26% growth in the previous quarter [9]. - The company's net revenue retention rate improved to 125%, indicating that existing customers are spending 25% more compared to the same period last year, reflecting the success of new AI product investments [10]. - Remaining performance obligations (RPOs) rose by 33% year-over-year to a record $6.9 billion, signaling strong future demand [11]. - Despite revenue growth, Snowflake incurred a net loss of $298 million on a GAAP basis for the quarter, contributing to a total net loss of $728 million for the first half of fiscal 2026, which is on track to exceed the previous year's loss of $1.3 billion [12]. AI Product Development - Snowflake launched Cortex AI in 2023, providing access to large language models (LLMs) from top developers, enabling businesses to integrate their internal data for AI software development [5]. - The platform includes tools like Document AI for extracting data from unstructured sources and Cortex Agents that can autonomously perform tasks, enhancing data analysis capabilities [6]. - Another AI platform, Snowflake Intelligence, is in public preview, allowing users to interact with data using natural language, making it accessible for non-technical employees [7]. - As of the end of Q2, Snowflake had 12,062 total customers, with over 6,100 utilizing at least one AI product weekly [8]. Valuation Concerns - Snowflake's stock is currently trading at a price-to-sales (P/S) ratio of 20.8, a one-year high, making it significantly more expensive compared to major cloud providers [14]. - The high valuation may limit the stock's upside potential in the near term, suggesting that investors may need to hold the stock for five years or more to achieve positive returns [17].