Here's 1 AI Stock Down About 25% Already in 2026. Is It a Buy?

Core Viewpoint - The stock of Snowflake, an AI data cloud specialist, is experiencing a decline in momentum despite its rapid growth and potential in the AI sector, raising questions about its future performance [1][2]. Financial Performance - Snowflake's fiscal Q3 revenue reached $1.21 billion, reflecting a 29% year-over-year increase, primarily driven by a 29% growth in product revenue, which amounted to $1.16 billion [3]. - The company reported a non-GAAP product gross margin of 76% in fiscal Q3 and an adjusted operating income of $131.3 million, up from $58.9 million in the previous year [8]. - Snowflake's adjusted free cash flow increased from $86.8 million in the year-ago quarter to $136.4 million [8]. Customer Metrics - The company ended fiscal Q3 with 688 customers contributing over $1 million in trailing-12-month product revenue, marking a 29% increase year-over-year [3]. - Snowflake's net revenue retention rate was 125% at the end of the period, indicating strong customer loyalty and usage [4]. - Remaining performance obligations (RPO) totaled $7.88 billion, up 37% year-over-year, suggesting growing customer demand for Snowflake's platform [5]. Demand Trends - The company has observed strong momentum in key metrics, particularly with the adoption of its enterprise AI agent, Snowflake Intelligence, which experienced the fastest ramp in product adoption in the company's history [6]. Profitability Concerns - Despite strong revenue growth, Snowflake faces challenges with profitability, reporting a net loss of over $1 billion for the trailing nine months, which is worse than the $963 million net loss in the same period last year [9]. - The stock-based compensation is significantly impacting GAAP profitability, contributing to investor concerns [9]. Market Capitalization and Outlook - The current market capitalization of Snowflake is approximately $57 billion, which raises questions about whether its growth and profitability profile justifies this valuation [10]. - For a positive reassessment of the stock, significant acceleration in top-line growth and a clear path to substantial GAAP profits would be necessary, though the latter appears unlikely in the near term [10].