SNOW Stock Trades Higher Than Industry at 10.8 P/S: Buy, Sell or Hold?

Core Insights - Snowflake (SNOW) shares are considered overvalued with a Value Score of F, trading at a forward Price/Sales (P/S) ratio of 10.80X compared to the industry average of 3.90X [1] - The company has experienced an 8% decline in share price over the last six months, underperforming the Zacks Computer and Technology sector, which appreciated by 7.8% [3] - Despite the decline, Snowflake has outperformed the Zacks Internet Software industry, which saw a 22.4% decline in the same period, driven by strong customer growth and platform adoption [4] Valuation - SNOW's forward P/S ratio of 10.80X is higher than competitors like Amazon (2.61X) and Oracle (10.37X) [1][7] - The company reported a 20% year-over-year growth in customer numbers, reaching 12,621 in Q3 FY26, with 688 customers generating over $1 million in trailing 12-month product revenues, a 29% increase year-over-year [8][7] Performance - Snowflake's net revenue retention rate was 125% in Q3 FY26, indicating strong customer loyalty and usage of its platform [4][7] - The company anticipates product revenue growth of 27%-28% for Q4 and FY26, despite facing macroeconomic challenges [7] AI and Product Development - Snowflake is benefiting from its role in the enterprise AI revolution, with over 7,300 customers using its AI and ML technology weekly [9] - AI influenced 50% of bookings in Q3 FY26, and the company achieved a $100 million AI revenue run rate earlier than expected [10] - Recent product enhancements include new AI capabilities and an AI-powered Business Intelligence Agent for United Rentals [11][12] Partnerships - Snowflake has expanded its partnership with Alphabet's Google Cloud to enhance product integration and market strategy, allowing for secure generative AI applications [13][14] Guidance - For Q4 FY26, Snowflake expects product revenues between $1.195 billion and $1.2 billion, indicating a 27% year-over-year growth [17] - For FY26, the expected product revenues are $4.446 billion, reflecting a 28% year-over-year growth [18] Competition - Snowflake faces stiff competition from major players like Amazon and Oracle, both of which are also expanding their AI capabilities [19] - Oracle has launched role-based AI agents, while Amazon's AI initiatives have gained significant momentum, with AWS's custom chips business exceeding a $10 billion annual revenue run rate [20][21]