Key Points
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Its stocks has rocketed 67% higher so far in 2026, but its sky-high valuation could limit further upside.
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The company offers cloud platforms that help users to aggregate their data and develop AI software.
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Revenue growth accelerated in its most recent quarter, but its bottom-line losses continue to pile up.
Data is the lifeblood of every artificial intelligence (AI) software application. The more information a business can feed into its AI models, the smarter and more useful its software will be. But since most large organizations host their valuable digital assets across multiple different cloud platforms like Amazon Web Services and Microsoft Azure, their AI models often draw information from fragmented data sets.
Snowflake's ( SNOW-5.41%) Data Cloud solves this problem by bringing data together from across different cloud environments, and it offers an expanding portfolio of tools and services to help businesses turn it into powerful AI software.
The stock is up 67% in 2026 and is closing in on a fresh record high for the first time in five years, but despite the company's spectacular operating results over the last few quarters, here's why investors might want to think twice about adding it to their portfolio.
Image source: Getty Images.
At the center of the enterprise AI revolution
Snowflake built a flagship AI platform called Cortex AI, where companies can pair their internal data with leading AI models from third-party developers like Anthropic and Meta Platforms to create AI agents, chatbots, and other software applications. The platform includes a series of ready-made tools to make the process easier, including CoCo (formerly Cortex Code), an AI-powered coding assistant.
Then there is CoWork, a powerful AI assistant that can help every knowledge worker -- even those in nontechnical jobs -- extract value from an organization's data. It even plugs into every major email and customer-relationship management platform so employees can use it to accelerate workflows, whether they want to identify sales trends or summarize meeting notes.
Cortex AI also features processing tools to help pull data from unstructured sources like contracts and invoices, which can be useful when training and deploying AI models.
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Snowflake had a record 14,554 total customers at the conclusion of its fiscal 2027 second quarter (ended July 31), and 9,100 of them had deployed CoCo, while 5,800 were using CoWork, so there is clear demand for these new AI products.
Accelerating revenue growth
Product revenue was $1.49 billion during the second quarter, a 37% increase from the year-ago period. That growth accelerated from 34% in the first quarter, highlighting the company's strong momentum. This great result prompted management to lift its product revenue guidance for fiscal 2027 by $230 million to $6.07 billion.
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However, the company is spending heavily in areas like marketing and research and development to deliver that top-line growth, making it difficult to achieve profitability on the basis of generally accepted accounting principles (GAAP). The company lost $487 million during the first half of fiscal 2027 alone, and while that was an improvement from its year-ago net loss of $727 million, profitability still seems way out of reach for now.
NYSE: SNOW
Snowflake
SNOW Motley Fool Moneyball Superscore: 80 out of 100. Get access to Motley Fool Moneyball. Premium Feature
Moneyball Superscore
80/100
(-5.41%) $-19.29
Current Price
$337.18
SNOW
YTD1w1m3m6m1y5y
PriceVS S&P
Key Data Points
Market Cap
$117BMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.
Day's Range
$337.11 - $356.83
52wk Range
$118.30 - $384.56
Volume
8.5M
Avg Vol
5.7M
Gross Margin
66.00%
On a positive note, Snowflake did generate an adjusted first-half profit of $383 million after excluding one-off and noncash expenses, which included $890 million in stock-based compensation. Although stock-based compensation isn't a cash expense, investors still pay for it by way of dilution; every time Snowflake issues new shares to its employees, every existing share held by investors becomes slightly less valuable, so this cost can't be dismissed.
In my opinion, Snowflake must find a way to turn the AI tailwind into consistent GAAP profits, because the company's history suggests it will otherwise wind up with billions of dollars in annual losses once its revenue growth inevitably slows down at some point in the future. That won't be good for its stock price.
Upside could be limited from here
Following its recent gains, the stock is now trading at a sky-high price-to-sales ratio (P/S) of 23.1, making it almost four times as expensive as the Nasdaq-100 index, which has a P/S of 6.1. In other words, it looks overvalued compared to a basket of America's largest technology companies.
There aren't many good comparisons to Snowflake in the public markets because of its unique product portfolio, but its stock is substantially more expensive than other cloud giants like Amazon, Microsoft, and Alphabet, which also offer broad portfolios of AI services.
SNOW PS Ratio data by YCharts.
Amazon, Microsoft, and Alphabet operate many different businesses outside of cloud computing, so they aren't the perfect companies to compare with Snowflake in terms of valuation. But Amazon Web Services grew its revenue by 37% during its most recent quarter, while Azure's revenue jumped by 43%, and Google Cloud's revenue surged by 82%. And they each generated significantly more revenue than Snowflake did, making their growth rates even more impressive.
Therefore, it's difficult to justify Snowflake's premium valuation relative to those cloud giants, and I actually think it will limit the potential upside of its stock from current levels. As a result, it probably isn't a great buy right now.
Should you buy stock in Snowflake right now?
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About the Author
Anthony Di Pizio is a contributing Motley Fool technology analyst covering artificial intelligence, cloud computing, autonomous vehicles, and enterprise software. Previously, Anthony was a licensed fund manager, stock broker, and corporate advisor. He holds a bachelor’s degree in commerce and economics from Macquarie University in Sydney, Australia, along with ASIC RG146 certifications in financial securities and derivatives.
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NYSE: SNOW
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(-5.41%)-$19.29](https://www.fool.com/quote/nyse/snow/)
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