Could Buying Snowflake Today Set You Up for Life?

Snowflake's (NYSE: SNOW) stock initially skyrocketed after its IPO in September 2020. The cloud-based data warehousing company went public at $120, and it more than doubled to $245 on its first trade before setting a record high of $401.89 in November 2021.

Today, Snowflake's stock trades at about $170. The bulls retreated as its growth slowed down, it racked up steep losses, and rising interest rates popped its bubbly valuations. Two of its biggest IPO investors also headed for the exits: Salesforce (NYSE: CRM) sold most of its stake in Snowflake in 2022, and Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) liquidated all of its shares in 2024. Frank Slootman also stepped down last February from Snowflake's CEO position after leading the company for five years.

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Image source: Getty Images.

Despite those setbacks, Snowflake's business gradually stabilized over the past year. So could accumulating this out-of-favor stock today set you up for life over the next few decades?

Why did Snowflake's growth cool off?

Large companies often store their data across a wide range of software and computing platforms. That fragmentation creates inefficient silos and makes it difficult for companies to make quick data-driven decisions. Snowflake breaks down those silos with its cloud-based data warehouses, which aggregate all that data so it can be easily accessed by third-party applications.

Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT) also integrate their own data warehouses into their cloud infrastructure platforms, but they try to lock those customers into their own ecosystems. Snowflake runs its warehouses on top of Amazon Web Services (AWS), Microsoft Azure, and other major cloud infrastructure platforms, so it's an ideal choice for companies that aren't tethered to a single cloud provider. Snowflake also offers flexible consumption-based plans, which only charge customers for the storage and computing power they use, instead of locking them into sticky subscriptions.

That flexibility enabled Snowflake to grow like a weed after its IPO. Its product revenue, which accounts for most of its top line, more than doubled in both fiscal 2021 and fiscal 2022 (which ended in January 2022). That figure rose another 70% in fiscal 2023, but only increased 38% in fiscal 2024. Its net revenue retention rate, which measures its year-over-year growth per existing customer, also fell from 168% in fiscal 2021 to 131% in fiscal 2024. It mainly blamed that slowdown on the macro headwinds, which drove many companies to rein in their software spending.

Its business isn't headed off a cliff

Over the past year, Snowflake's top-line growth continued to decelerate as its net revenue retention rate declined. That slowdown indicates that its business is maturing, but it's still expanding, and its growth hasn't stalled out yet.

Data source: Snowflake. YOY = Year-over-year. Periods are for fiscal years ending Jan. 31.

For the first quarter of fiscal 2026, Snowflake expects its product revenue to rise 21% to 22% year over year. Analysts expect its total revenue to rise 24% to $4.5 billion for the full year.

It expects the secular expansion of the AI market to drive its growth as companies ferry more data to its warehouses so AI applications can access it more easily. Its new AI-oriented tools, including Cortex Analyst and Snowflake Intelligence, should help it remain a crucial platform for building new generative AI services.

Snowflake's adjusted product gross margins, adjusted operating margins, and adjusted free cash flow (FCF) margins have also stabilized over the past year. It achieved that stabilization by pruning its workforce and trimming its other expenses.

Data source: Snowflake.

Could Snowflake's stock set you up for life?

Analysts expect Snowflake's adjusted earnings per share to grow 39% in fiscal 2026. But at its current price, plenty of growth has already been baked into its stock at 169 times its forward adjusted earnings and 13 times this year's sales.

Let's assume you invest $10,000 in Snowflake, and it continues to grow its revenue at a robust compound annual growth rate (CAGR) of 15% from fiscal 2025 to fiscal 2045. By the final year, it would generate $60 billion in revenue. If it trades at a generous 10 times sales, it would be worth $600 billion -- which would represent a 10-fold gain and turn your $10,000 investment into $100,000. That would be a great two-decade gain, but I'm not sure it would set you up for life on its own. That said, Snowflake could still be a great addition to a diversified growth-oriented portfolio for long-term investors.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun has positions in Amazon and Berkshire Hathaway. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, Microsoft, Salesforce, 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.