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

Snowflake released its first-quarter earnings report on May 21, 2025. Here’s Morningstar’s take on Snowflake’s earnings and stock.

Key Morningstar Metrics for Snowflake

• Fair Value Estimate: $150
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Snowflake’s Q1 Earnings

No-moat Snowflake delivered a solid start to fiscal 2026, with revenue growing 26% and remaining performance obligations up 34% compared with a year earlier. The company continues to benefit from the adoption of open table formats and increased queries for artificial intelligence-related data analytics.

We lift our fair value estimate to $150 per share from $137, based on a more optimistic revenue outlook supported by healthy demand for Snowflake’s user-friendly data processing capabilities. However, we still think Snowflake faces pressure to maintain its high growth and justify its valuation in a competitive environment. Shares currently look overvalued to us.

First-quarter revenue of $997 million beat the higher end of Snowflake’s previous guidance. Macroeconomic factors had little impact on performance, with the firm adding 451 new customers over the past quarter. The net revenue retention rate remained high at 124%, demonstrating Snowflake’s existing customers’ strong incremental consumption as the platform embraces the open-source Iceberg table format.

Management also pointed out favorable adoption trends of new products, such as Snowpark and dynamic tables, that are contributing to the quarter’s outperformance. We view the strength in new product attachment as a crucial element for Snowflake to stay competitive in the data lake and data warehouse market.

Despite Snowflake’s progress with top-line growth, its magnitude of margin expansion was smaller than we expected. Its cost of product revenue and sales and marketing expenses as a percentage of revenue remained roughly flat over the past year. In addition, total headcount increased 5% quarter to quarter, a significant increase in hiring compared with the previous few quarters. We recognize the vast market opportunities in front of Snowflake, but we also believe improved operational efficiency could better prepare the company to weather any uncertainties in the current economic environment.

Fair Value Estimate for Snowflake

With its 2-star Morningstar Rating, we believe Snowflake’s stock is overvalued compared with our long-term fair value estimate of $150 per share, which implies a fiscal 2026 enterprise value/sales multiple of 11 times.

We expect Snowflake to achieve a five-year compound annual growth rate of 23%, mainly driven by an expansion of the data lake and data warehouse market. In our view, it will take decades for Snowflake and other data platform vendors to fully penetrate the targeted customer group, as it takes time to set up a new enterprise system and configure the ecosystem surrounding it. As customer utilization continues to climb, Snowflake and its competitors should enjoy an extended growth runway beyond the next decade.

We think Snowflake’s $342 billion total addressable market forecast for calendar year 2028 is reasonable, and additional opportunities might exist among public sector and higher education customers. That said, our estimate shows a less than 3% total market share for Snowflake by 2028, which should be similar to the company’s current market share level. Incremental consumption from existing customers should serve as the main driver of Snowflake’s revenue growth, as we model a net revenue retention rate of above 113% through fiscal 2035. We think Snowflake’s professional services are crucial to help the company land new logos, and the segment’s annual revenue growth should remain in the teens through fiscal 2030 while narrowing its loss.

Read more about Snowflake’s fair value estimate.

Economic Moat Rating

We assign Snowflake a no-moat rating because of the intense competition in the data warehouse and data lake space. Despite being one of the leading data platforms on the market, we believe it is too early to call out Snowflake as a winner. Snowflake currently boasts a 126% net retention rate, which should support the company’s high growth over the next few years. However, we need more evidence that Snowflake’s technology road map, use cases, and customer base are mature enough to underpin high switching costs as a moat source. Although we also see elements of cost advantage and network effect across Snowflake’s offerings, we don’t think the company, overall, has developed a competitive advantage that gives us enough confidence to award a narrow moat.

The advent of public clouds, such as Amazon Web Services, or AWS, Microsoft Azure, and Google Cloud Platform, or GCP, has dramatically lowered the cost of computing and data storage resources for business users. Enterprises can now afford to store massive amounts of data in public clouds for further query and analysis, which gives rise to data lake and data warehouse products. Data lakes are centralized depositories that store raw data to be processed later, and data warehouses store structured data ready for analytics. Together, they form the backbone of online analytical processing, or OLAP, database systems that enable efficient data querying and reporting. OLAP databases run in parallel with online transactional processing, or OLTP, databases, such as Oracle and MySQL, that handle high-volume, real-time recordkeeping of companies’ day-to-day operations.

Read more about Snowflake’s economic moat.

Financial Strength

We believe Snowflake is financially stable. The company’s cash and equivalents balance has been around $4 billion since its IPO, and non-GAAP free cash flow has been positive since fiscal 2022. However, Snowflake has a history of heavily using stock-based compensation to lift its cash flows. In fiscal 2025, Snowflake’s total stock-based compensation expense surpassed $1.5 billion, or 43% of the company’s revenue, and the size of Snowflake’s stock-based compensation has been above 40% of revenue since the company’s IPO. Although we forecast a gradual decline of stock-based compensation as a percentage of revenue to the midteens by fiscal 2035, long-term investors should consider the potential dilutive effect of Snowflake’s heavy stock-based compensation usage.

Read more about Snowflake’s financial strength.

Risk and Uncertainty

We assign Snowflake a Morningstar Uncertainty Rating of Very High because we believe the data warehouse and data lake competitive landscape can change very quickly. Although Snowflake is one of the leading data platform solutions today, there is no guarantee that the company can keep its leadership as the market continues to evolve over the next few decades.

We think Snowflake’s relationship with hyperscalers is becoming trickier as the company grows into a well-known brand in the database field. Over the years, Snowflake has formed a “frenemy” relationship with Amazon Web Services, Microsoft Azure, and Google Cloud. Public cloud operators need third-party offerings like Snowflake to enhance their marketplace ecosystems and reinforce their network effects. Snowflake also relies on the cloud infrastructure provided by hyperscalers to operate its business. Although Amazon, Microsoft, and Google are much bigger players in the database market compared with Snowflake, they can still choose to step up their research and development and marketing investments for Redshift, Azure Synapse, and BigQuery, which might threaten the future growth trajectory of Snowflake.

Read more about Snowflake’s risk and uncertainty.

SNOW Bulls Say

• The total addressable market of data warehouses and data lakes should experience double-digit annual growth over the next decade, and Snowflake is one of the leaders in the segment.
• Snowflake’s addition of machine learning and artificial intelligence functionalities should incentivize existing customers to put more data workflow on the platform.
• Snowflake is the only established software-as-a-service database offering on the market, which caters to the needs of organizations that do not have robust internal IT expertise

SNOW Bears Say

• Competition with Databricks’ and hyperscalers’ data warehouse products continues to intensify, leading to heavy marketing and R&D pressure for Snowflake.
• Snowflake’s speed of gaining new logos can slow down as the company shifts its focus to incremental consumption from existing customers, limiting the monetization potential of Snowflake Marketplace.
• Snowflake’s valuation is demanding. Any slowdown in growth could be devastating to the valuation.

This article was compiled by Jacqueline Walker.