After Earnings, Is Snowflake Stock a Buy, a Sell, or Fairly Valued?

Snowflake SNOW released its fiscal first quarter earnings report on Feb. 26. Here’s Morningstar’s take on Snowflake’s earnings and stock.

Key Morningstar Metrics for Snowflake

• Fair Value Estimate: $165.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Snowflake’s Earnings

• Q4 results were better than we expected, and the fiscal 2026 outlook was also exceptionally strong.
• The fiscal 2026 outlook was for product revenue growth of 24% and non-GAAP operating margin of 8% on the back of optimism around artificial intelligence sales.
• Snowflake delivered a revenue growth outlook of 20% or more for 2026, which we thought it needed to justify its premium valuation. As a result, we have raised our fair value estimate to $165 per share from $129.
• Previously, we felt sales were pulled forward into the third quarter, we expected a slowdown in the fourth quarter, and we thought a 2026 outlook of greater than 20% would be difficult to achieve.
• Pretty much every metric was strong in the quarter, including new client additions, RPO growth, large customer growth, and commentary on AI product growth, where we think Snowflake is still in the early stages and proving product market fit.

Fair Value Estimate for Snowflake

With its 3-star rating, we believe Snowflake’s stock is fairly valued compared with our long-term fair value estimate of $165 per share. Our valuation implies forward fiscal-year enterprise value/sales of 13 times. We expect Snowflake will achieve a compound annual growth rate for revenues of 23% (20%) over the next five (10) years, driven by an expansion of the overall data lake and data warehouse TAM, along with Snowflake taking share. This substantial growth is driven by continued shifts of workloads to a cloud environment.

We forecast that gross margins will expand from 67% in fiscal 2025 to 80% in fiscal 2035 as the company’s growth leads to scale-based leverage. We expect GAAP operating margins to increase from negative 40% in fiscal 2025 to 26% by fiscal 2035, as we see operating leverage from improved scale and lower sales investment needs.

Read more about Snowflake’s fair value estimate.

Economic Moat Rating

We assign Snowflake a no-moat rating. While some elements of switching costs are probably present, we do not have enough confidence in the firm’s returns on invested capital 10 years from now to award it a narrow moat.

Snowflake is a fast-growing provider of data lake, data warehousing, and data sharing solutions. The company’s value proposition lies in storing data in the cloud through its combined data lake and data warehouse platform. Traditionally, data has been recorded in and accessed via databases. However, the rise of the public cloud has resulted in an increasing need to access data from different databases in one place and different formats and structures. A data warehouse and data lake can serve these needs by gathering data from various databases in one place and in structures that are more cloud-friendly.

Read more about Snowflake’s economic moat.

Financial Strength

We believe Snowflake is financially stable, and will generate positive free cash flow over the long term. Snowflake had cash and cash equivalents and investments of $4.6 billion as of fiscal 2026, with $2.3 billion in debt on its balance sheet. Undergoing its IPO in the 2020 calendar year, Snowflake raised over $3 billion. We model only moderate acquisitions in our explicit 10-year forecast, as we think Snowflake will focus primarily on in-house R&D and investing in its sales team.

Read more about Snowflake’s financial strength.

Risk and Uncertainty

Snowflake is still in the unprofitable, high-growth phase of its lifecycle. The key risk and uncertainty we see relates to Snowflake’s future growth. The outlook could change dramatically if Snowflake is able to keep growing and taking share, or if growth starts to decelerate. Snowflake runs the risk that other cloud-neutral software will enter its market or that or that competition increases from the public cloud providers, as their offerings improve in terms of features or usability. Many existing customers of public cloud providers may decide to use what their providers already offer.

Considering environmental, social, and governance risk, Snowflake’s customers’ data could be compromised by security threats. This is a risk for virtually all software companies. However, even if such attacks were to occur, we think the impact on Snowflake’s business would be immaterial in the long run.

Read more about Snowflake’s risk and uncertainty.

SNOW Bulls Say

• There are long-term tailwinds in the data space, which could fuel growth for Snowflake.
• If Snowflake can figure out how to monetize features that fit with the AI demand boom, it could be another growth driver.
• Snowflake could expand to other multicloud data needs, pushing spending per customer higher.

SNOW Bears Say

• The space is increasingly competitive, and there are other offerings in the marketplace, both from the public cloud providers and independent providers.
• Snowflake’s valuation is demanding, and without its heavy use of stock-based compensation, it would not be cash flow positive. Any slowdown in growth could be devastating to the valuation.
• There is still a lot of uncertainty about how much revenue attributable to AI Snowflake will ultimately generate.

This article was compiled by Aman Dagra.