Snowflake shares jumped as much as 20% in premarket trading after the company reported a blowout second quarter, with AI products driving revenue up 35% to $1.55 billion. Management raised full-year guidance even as AI's lower margins put pressure on the product gross-margin outlook.
Snowflake's AI flywheel accelerates growth
Snowflake surged as much as 20% in premarket trading on Thursday after the cloud-software company posted second-quarter revenue of $1.55 billion, up 35% year over year. Product revenue reached $1.49 billion, up 37%, marking a third straight quarter of accelerating growth.
Non-GAAP earnings per share came in at $0.62, beating estimates by 39%. According to 24/7 Wall St, CEO Sridhar Ramaswamy said the company's AI tools are compounding its advantages: "AI continues to compound our advantages, creating a flywheel effect across the business." Adoption backs that up — Cortex AI surpassed 9,100 accounts and CoWork expanded to 5,800 accounts, while net revenue retention held at 126% and remaining performance obligations climbed to $9.00 billion, up 30% year over year.
Margin outlook shifts as AI products scale
Growth is coming with a trade-off. Management raised its FY27 non-GAAP operating margin guidance to 14.5% from 13.5%, and quarterly operating margin already expanded to 15.3% from 11% a year earlier. Yet the company also trimmed its FY27 product gross-margin guidance to 74% from 75%, since AI products carry lower margins than the core platform.
A new $6 billion, five-year AWS contract and an expanding $200 million OpenAI partnership are expected to bring bandwidth savings that cushion the mix shift.
Analysts raise targets, flag valuation
Snowflake guided Q3 product revenue to $1.588 billion to $1.593 billion, 37% to 38% growth, with a 15.5% non-GAAP operating margin. Morningstar raised its price target to $284 from $255 but now views the shares as overvalued given intensifying AI competition.
The stock market reaction reflects the scale of the beat: Snowflake stock is up more than 40% year to date, with AI adoption now doing most of the work behind that gain.
Sources: Yahoo Finance, 24/7 Wall St.
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