Snowflake (SNOW): Bargain or Bomb?

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Data is the currency of the future.

And every second, organizations generate mountains of it.

But that means nothing unless you can turn it into actionable insights.

The problem is pulling everything together from different sources.

Snowflake’s (SNOW) genius lies in its ability to unify data across multiple cloud providers. 

Yet, despite 30% sales growth year-over-year, the stock dropped on the latest earnings report.

However, according to our TrackStar data, financial pros have continued to search for the stock at a noticeably higher rate.

While bears love to highlight the company’s negative earnings, there is something important they are missing.

Snowflake’s Business

As businesses increasingly rely on data to drive decisions, Snowflake is positioning itself as the go-to platform for turning information into action.

With over 10,000 customers worldwide, Snowflake’s cloud-based platform is revolutionizing how businesses harness their most valuable asset: data.

Operating in more than 40 regions globally, the platform tackles a range of data workloads, from warehousing to data science. 

Its consumption-based pricing model means customers only pay for what they use – a refreshing departure from traditional software licensing.

Snowflake’s platform helps companies connect data from different sources, creating datasets they can use.

Not only is this critical for understanding operational data, but also for creating useful AI models.

Source: SNOW Q2 2025 Investor Presentation

Snowflake’s Q2 fiscal 2025 results paint a picture of a company on fire. Product revenue surged 30% year-over-year, hitting $829 million. 

The company now boasts 510 customers each spending over $1 million annually on the platform – a testament to Snowflake’s ability to hook and scale with major players across industries.

Snowflake recently rolled out Iceberg tables, allowing customers to tap into compute services without storage requirements. 

This move, coupled with aggressive investments in AI capabilities, signals Snowflake’s determination to stay ahead in the fast-paced world of data analytics. 

Financials

Source: Stock Analysis

Snowflake has grown from just under $100 million in sales to over $3.2 billion in five years.

During that same period, gross margins expanded by 20%, while free cash flow margin turned positive, climbing to just shy of 26%.

Operating and profit margins turn negative thanks to heavy stock-based compensation.

That’s why we see high cash flows but negative earnings.

In fact, the company generates $1.2 billion in free cash flow annually, which it has recently deployed to repurchase $1.7 billion of shares, yielding a healthy 4.9% return.

However, many wondered why the company recently chose to issue $2 billion in convertible bonds, given it holds over $3 billion in cash on the balance sheet and very little debt.

It seems a bit shortsighted to use such a move just to repurchase shares.

Valuation

Source: Seeking Alpha

Snowflake’s stock isn’t cheap, whether you’re looking at it on a non-GAAP trailing 12-month P/E or price-to-cash flow basis.

It’s notably more expensive than every other stock on the list, save for Cloudflare (NET) and MongoDB (MDB) on price-to-cash flow.

It’s also one of the more expensive stocks in terms of price and enterprise value-to-sales ratio.

Growth

Source: Seeking Alpha

Snowflake delivers solid revenue growth, which is expected to continue in 2025.

In fact, it boasts the best average annual growth rate over three and five years among all the stocks listed here.

And, its free cash flow average growth over the past three years at 58% is second only to Cloudflare.

Profitability

Source: Seeking Alpha

None of the companies on our list generate positive net income. However, most face heavy stock-based compensation costs.

Consequently, they all generate positive free cash flow, of which Snowflake takes the top spot.

The negative earnings are why we see the negative returns on equity, assets, and total capital.

Our Opinion 5/10

Snowflake demonstrates a capacity for consistently high sales growth that can translate into cash flow.

However, the stock is very expensive, and we question the decision to issue debt to fund share repurchases.

The company also faces heavy competition from Microsoft and others.

For these reasons, we’d prefer to wait for shares to come down quite a bit, even as much as 50% before taking a position.

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