Snowflake’s Stock (SNOW) Rallying Pre-Market As Earnings Await

Snowflake's stock price (NYSE: SNOW) is up 4.66% pre-market, as earnings await after today's market close. Running ahead of earnings could have something to do with MongoDB's (MDB) blowout earnings that has their own stock 30% higher in extended hours.

The street expects EPS for SNOW to be $0.27, up strongly from the $0.18 delivered this time last year.  Revenue is expected to come in at $1.09 billion, a 25% sales growth rate Y/Y. Notably, the company has beaten its EPS estimates in each of the past four earnings reports.

Snowflake's most recent earnings (Q125) was a clear win. Product revenue soared to $996.8 million, a 26% year-over-year increase, comfortably exceeding analyst expectations. Adjusted earnings per share (EPS) also outperformed, coming in at $0.24 against an anticipated $0.21. A net revenue retention rate of 124% underscores the company's ability to retain and expand its customer base, a critical metric for any subscription-based business.

Furthermore, Snowflake now boasts 11,578 customers, with 606 generating over $1 million in annual product revenue, a 27% year-over-year increase. This strong showing prompted the company to raise its fiscal year product revenue forecast to $4.325 billion.

Strategic Initiatives: AI and Acquisitions

Snowflake isn't just riding the AI wave; it's actively shaping it. Strategic partnerships with OpenAI and Anthropic are pivotal, enabling customers to leverage cutting-edge AI models within the Snowflake ecosystem.

The launch of Snowflake Cortex, a suite of generative AI services, empowers users to build AI-powered applications using familiar tools like SQL and Python. This strategic focus on AI is expected to be a significant growth driver in the coming years.

The acquisition of Crunchy Data, a cloud-based PostgreSQL services provider, for approximately $250 million, is another strategic move. This acquisition strengthens Snowflake's support for enterprise workloads and enhances its AI Data Cloud platform, particularly for AI and machine learning applications.

Whilst Snowflake's stock has performed strongly over the past year (+68%), it is always worth considering the flip side argument. The company's aggressive AI push, while promising, could be a double-edged sword. The company is investing heavily in a rapidly evolving field, and there's no guarantee that its AI initiatives will yield the expected returns, or that SNOW emerges as a winner. 

DA Davidson did not see things that way in their pre-earnings note, keeping a bullish $250 price target and Buy rating in tact. The firm noted durable momentum across a range segments including Snowpark, data engineering, AI/ML products, and data warehouse. Citi have also moved to a $250 price target (from $245) late last week, expecting to see an acceleration of growth in the second half.

Snowflake's recent performance and strategic initiatives paint a picture of a company with significant growth potential. Its strong revenue growth, high retention rate, and strategic AI investments are all positive indicators. However, its high valuation, increasing competition, and the inherent risks associated with its AI push may warrant a degree of caution.