Snowflake Shares Soar as Outlook Brightens. Is It Too Late to Buy the Stock?

It had been a very difficult year for Snowflake (NYSE: SNOW) stock going into its fiscal 2025 third-quarter earnings report. Then investors got something to cheer about in its results and the stock skyrocketed higher. The stock was still down about 15% on the year as of the time of this writing, but that's a big improvement from just a few months ago.

Let's take a closer look at the cloud-based data warehousing company's Q3 earnings results to see if the turnaround in the stock can continue.

A turn to profitability

On the revenue growth front, Snowflake's fiscal 2025 Q3 performance was pretty similar to its second-quarter performance when the stock tumbled. However, its revenue beat this quarter was more significant, and investors also liked the company's commitment to cost management.

For Q3, Snowflake's revenue jumped 28% year over year to $942 million, which was similar to the 29% revenue growth it saw in Q2. Product revenue climbed 29% to $900 million. Adjusted earnings per share (EPS) fell to $0.22 from $0.27 a year ago. The results easily topped the analyst consensus for revenue of $897 million and adjusted EPS of $0.15.

The company said it has undertaken meaningful cost management initiatives. This includes centralizing teams and removing redundant management layers. It is also using artificial intelligence (AI) to help increase efficiency and lower costs.

However, the company is not backing down from innovation. It has introduced new data engineering features and collaborated with companies such as Microsoft and ServiceNow to improve data interoperability. Meanwhile, it said its Cortex suite of AI features is seeing increasing adoption as AI begins to play a bigger role in data analytics and management. It also plans to build on its pending acquisition of Datavolo to enhance its data connectivity capabilities, especially when it comes to unstructured data.

Looking ahead, Snowflake management increased its guidance for full-year product revenue to approximately $3.43 billion, up from a prior outlook of $3.36 billion. The new forecast represents 26% year-over-year growth. It also raised Snowflake's operating income margin guidance from 3% to 5%.

For Q3, the company forecast product revenue of between $906 million to $911 million, representing growth of about 23%. It is looking for operating income margin of 4%.

Image source: Getty Images.

Can Snowflake's stock momentum continue?

Snowflake's stock struggled earlier in the year due to questions surrounding whether AI will help or harm the company moving forward. Its customers were also the subject of several cybersecurity attacks where hackers gained access to data. While Snowflake does not appear to have been at fault, it still affected the stock.

The question of AI also came up on its recent earnings call, with an analyst asking about the longevity of structured data in the world with generative AI. Snowflake argued that quickly getting data and being able to act on it is what makes great companies great, meaning its products will remain relevant, while being able to use its AI products to move from structured to unstructured data will be a big opportunity for it moving forward.

While there is a fear that AI will disrupt its business, data warehousing for structured data will likely still be more cost-efficient compared to using AI, while the company will have an opportunity to use AI to bring in unstructured data. However, Snowflake will need to continue to show strong results to prove this is the case.

From a valuation standpoint, the stock trades at a forward price-to-sales (P/S) multiple of over 13 times next year's analyst estimates. That's above where high-margin, SaaS (software-as-a-service) companies growing between 25% to 30% historically trade, although there are certainly periods when they have commanded higher multiples.

SNOW PS Ratio (Forward 1y) data by YCharts.

Between its valuation and questions about what the effect of AI will ultimately be on its business, I would not chase Snowflake's stock following this recent surge in price. Not much has changed since Q2 when the stock price sank, except that expectations were lower.

As such, I'd prefer to stay on the sidelines with Snowflake at current levels.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft, ServiceNow, and Snowflake. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.