What Caused Snowflake's Recent Stock Plunge

Key Takeaways

• Snowflake's stock plunged despite an earnings beat, driven by decelerating product revenue growth and cautious Q4 guidance, highlighting demanding investor expectations for high-growth software.
• The company's consumption-based model, coupled with competitive pressures from hyperscalers and Databricks, contributed to the growth slowdown and raised concerns about future expansion.
• Snowflake is aggressively betting on AI, with significant partnerships and product innovations aimed at reaccelerating growth and capturing the burgeoning AI data platform market.

What Caused Snowflake's Recent Stock Plunge?

Snowflake Inc. (NYSE: SNOW) shares experienced a significant sell-off following its latest earnings report, despite the company actually beating Wall Street expectations on both revenue and earnings. The stock plunged nearly 8% in premarket trading on December 4, 2025, and continued its decline, trading at $172.50 on February 20, 2026, down 3.74% from its previous close. This sharp reaction, often termed a "beat-and-drop" scenario, underscores the exceptionally high bar set by investors for high-growth software companies, especially those trading at premium valuations.

The primary catalyst for the investor exodus was the deceleration in product revenue growth. Snowflake reported fiscal third-quarter product revenue of $1.16 billion, a 29% year-over-year increase, which was above the $1.13 billion analysts expected. However, this growth rate marked a slowdown from the 32% reported in the previous quarter. Furthermore, the company's Q4 guidance disappointed some investors, as management projected product revenue between $1.195 billion and $1.2 billion, implying a further slowdown to 27% growth. For a company whose valuation is predicated on robust expansion, even minor dips in growth momentum can trigger outsized market reactions.

This investor scrutiny is particularly intense given Snowflake's historical performance and its current valuation metrics. The stock has traded in a wide 52-week range of $120.10 to $280.67, and its current price of $172.50 sits significantly below its highs, reflecting the market's sensitivity to growth narratives. The market capitalization stands at $59.03 billion, yet the company still reports negative earnings per share (EPS) of -$4.02 on a trailing twelve-month (TTM) basis, with a negative P/E ratio of -42.93. These figures highlight that investors are betting heavily on future growth and profitability, making any signs of deceleration a major concern.

The immediate aftermath of the earnings call also saw a flurry of analyst activity, with several firms adjusting their price targets downwards. For instance, Morgan Stanley lowered its price target from $299 to $270, and RBC Capital reduced its target from $300 to $245. While many analysts maintained "Buy" or "Overweight" ratings, these adjustments reflect a recalibration of expectations in light of the growth slowdown and broader negative sentiment towards the software sector. The market is clearly signaling that Snowflake's premium valuation demands not just growth, but accelerating or at least stable high-rate growth, which the latest report failed to deliver.

Why is Snowflake's Growth Slowing Down?

The deceleration in Snowflake's product revenue growth can be attributed to a confluence of factors, primarily stemming from its consumption-based business model and an increasingly competitive market landscape. CEO Sridhar Ramaswamy highlighted during the earnings call that large customer migrations can be "lumpy and not all that easy to predict," leading to quarterly variability in revenue. This inherent characteristic of the consumption model means that revenue is directly tied to customer usage, which can fluctuate based on project timelines, economic conditions, and optimization efforts by clients.

Adding to this complexity, Snowflake's CFO Brian Robins, who recently joined the company, emphasized that investors should focus on the full-year guidance rather than getting fixated on quarterly beats or misses. The company raised its full-year guidance by $51 million to $4.446 billion, implying a 28% growth for fiscal 2026. This suggests that while quarterly growth might be uneven, the underlying business trajectory remains robust. However, the market, accustomed to consistent acceleration from high-growth software names, often struggles to look beyond short-term fluctuations.

Another contributing factor to the slower growth outlook is the strategic decision to offer discounts on large, long-term deals. While such deals secure future revenue streams and expand market share, they can temporarily depress reported product revenue growth rates. This strategy reflects an effort to land significant enterprise clients and deepen their commitment to the Snowflake platform, even if it means sacrificing some near-term top-line expansion. This trade-off is common in the enterprise software space, but it requires careful communication to a market that prioritizes growth above all else.

The competitive landscape is also intensifying, posing a significant headwind. Major cloud providers like Google Cloud, Amazon Web Services (AWS), and Microsoft Azure are bundling data services with their broader ecosystems, creating powerful, often more cost-effective alternatives for customers already invested in those clouds. Google Cloud's recent introduction of a "Global Queries" feature for its BigQuery service, for instance, directly challenges Snowflake's core strength in cross-region data sharing. Specialized players like Databricks are also gaining ground, particularly in machine learning workloads. This heightened competition means Snowflake must continuously innovate and demonstrate superior value to maintain its market position and pricing power.

How is Snowflake Betting on AI to Reaccelerate Growth?

Snowflake is making a substantial bet on artificial intelligence (AI) to reaccelerate its growth trajectory and solidify its position as the leading "AI Data Cloud." The company has aggressively integrated AI capabilities across its platform, recognizing that the future of data management is inextricably linked to AI workloads. This strategy is already yielding tangible results, with Snowflake achieving a $100 million AI revenue run rate one quarter ahead of schedule.

The adoption of AI within Snowflake's ecosystem is impressive. Over 7,300 accounts are now leveraging Snowflake's AI capabilities weekly, and 1,200 customers have adopted Snowflake Intelligence, the company’s agentic AI platform. This indicates that AI isn't merely a separate product line but is deeply embedded, driving adoption and usage across the entire platform. During the earnings call, CEO Sridhar Ramaswamy noted that AI is influencing approximately 50% of new bookings and was incorporated into 28% of all use cases deployed in the quarter. This demonstrates AI's pervasive impact on customer engagement and new business generation.

Strategic partnerships are a cornerstone of Snowflake's AI strategy. The company announced a multi-year, $200 million collaboration with OpenAI, aimed at bringing Claude AI models natively into Snowflake across all three major cloud providers. This move positions Snowflake as a central hub where enterprises can run advanced AI workloads directly on their own proprietary data, eliminating the need to move sensitive information to external systems. Such integrations enhance data governance, security, and compliance, which are critical for enterprise adoption of AI. Additionally, a partnership with Palantir Technologies integrates Snowflake's AI Data Cloud with Palantir's Foundry and Artificial Intelligence Platform (AIP), further expanding its AI capabilities and reach.

The concept of "data gravity" plays a crucial role in Snowflake's AI thesis. As enterprises build AI applications, they tend to stay within the database ecosystem where their data already resides. Snowflake's core platform, with its decoupled compute and storage architecture and secure data sharing features, creates a sticky environment. This stickiness is amplified as customers pull adjacent workloads, including search, vector search, and foundational model usage, into the same ecosystem. This dynamic ensures that as AI adoption scales, Snowflake is well-positioned to capture an increasing share of the multi-hundred-billion-dollar AI data platform market, leveraging its existing customer base and robust infrastructure.

What Do the Financials and Analyst Sentiment Tell Us?

Snowflake's financial fundamentals, while showing strong top-line growth, also reveal the challenges of scaling a high-growth software company. For the trailing twelve months (TTM), the company reported revenue of $4.38 billion, representing a 29.2% year-over-year increase. This growth is impressive, but the market's reaction to the recent deceleration to 29% product revenue growth highlights the premium placed on sustained acceleration. Despite the revenue expansion, Snowflake remains unprofitable on a GAAP basis, with a net income of -$1.35 billion and an EPS of -$4.02 for the TTM. The net margin stands at -30.8%, and operating margin at -34.3%, indicating significant investments in growth and operations.

However, there are positive underlying metrics. The net revenue retention rate held steady at a healthy 125%, meaning existing customers are increasing their spending on the platform. Snowflake also added a record 615 new customers, bringing the total to over 12,600, and signed four 9-figure deals, a quarterly record. The remaining performance obligations (RPO) grew 37% year-over-year to $7.88 billion, accelerating from prior quarters. This RPO acceleration suggests that while current consumption might be lumpy, demand for Snowflake's services remains strong, and future revenue is largely contracted.

Analyst sentiment, despite recent price target adjustments, remains broadly positive. The consensus analyst rating for SNOW is a "Buy," with 38 analysts recommending "Buy" and 10 recommending "Hold" out of 49 total ratings. Only one analyst has a "Sell" rating. The consensus price target stands at $270.92, with a median of $272.50, suggesting a significant upside from the current price of $172.50. The highest target is $325.00, while the lowest is $220.00. These targets indicate that Wall Street still sees substantial long-term potential in Snowflake, even if short-term growth concerns are weighing on the stock.

The valuation metrics, however, remain elevated. Snowflake trades at a price-to-sales (P/S) ratio of 13.46, significantly higher than the industry average. While this is typical for high-growth software companies, it means the stock is sensitive to any perceived slowdown in growth. The negative P/E and EV/EBITDA ratios reflect the company's current unprofitability, placing greater emphasis on future earnings potential. Investors are essentially paying a premium for Snowflake's market leadership, its robust data cloud architecture, and its strategic positioning in the burgeoning AI market. The challenge for Snowflake will be to translate its strong RPO and AI adoption into sustainable, profitable growth that justifies its valuation.

What are the Risks and Opportunities for Snowflake Investors?

For Snowflake investors, the current landscape presents a complex mix of significant opportunities and notable risks. On the opportunity side, Snowflake is exceptionally well-positioned to capitalize on the explosive growth of the AI data platform market. Its "Data Cloud" architecture, which decouples compute from storage and supports multi-cloud deployment, is highly appealing to large organizations seeking scalability and flexibility for their AI initiatives. The company's secure data sharing features create a sticky, multi-product ecosystem, making it difficult for customers to switch to competitors once they've built their data pipelines and applications on Snowflake.

The company's aggressive investments in AI, including products like Snowflake Intelligence and partnerships with industry leaders like OpenAI and Palantir, are designed to make it the central hub for enterprise AI workloads. With AI influencing a substantial portion of new bookings and customer use cases, Snowflake is tapping into a fundamental shift in how businesses leverage data. The acceleration in RPO growth to 37% and a healthy net revenue retention rate of 125% indicate strong underlying demand and customer loyalty, suggesting that the current growth deceleration might be a timing issue rather than a fundamental weakening of demand. If Snowflake can successfully reaccelerate growth as AI adoption scales, the current sell-off could indeed represent a compelling buying opportunity.

However, the risks are equally formidable. The most direct threat is intensifying competition. Major cloud providers (AWS, Azure, Google Cloud) are bundling data services and offering powerful alternatives, often with more integrated ecosystems and potentially lower costs for existing cloud users. Specialized players like Databricks are also formidable competitors, particularly in machine learning workloads. This competitive pressure could lead to pricing pressure, as evidenced by Snowflake offering discounts on large, long-term deals, which could squeeze margins and further impact revenue growth rates.

Another significant risk stems from the broader market sentiment towards software stocks. The rise of "Agentic AI" and concerns about its impact on traditional user-based pricing models have triggered sector-wide declines. Investors are increasingly scrutinizing software companies for clear AI monetization paths and tangible returns on investment. Snowflake's high valuation, with a P/S ratio of 13.46, makes it particularly vulnerable to any perceived slowdown or increased cost pressures, such as elevated infrastructure spending on GPUs for AI. Insider selling, including Director Frank Slootman's sale of 100,000 shares, and ongoing investor investigations by law firms like Pomerantz LLP, also add to the near-term uncertainty and could weigh on investor confidence.

What Does This Mean for Investors?

For investors considering Snowflake, the recent stock plunge presents a classic dilemma: is this a temporary setback in a long-term growth story, or a sign of deeper structural challenges? The answer likely lies in the company's ability to execute on its ambitious AI strategy and navigate an increasingly competitive cloud market.

The market has clearly signaled its impatience with decelerating growth, even for companies that beat headline earnings figures. Snowflake's consumption-based model, while offering flexibility, also introduces revenue lumpiness that can spook short-term focused investors. However, the underlying demand, evidenced by accelerating RPO and strong customer additions, suggests that the core business remains robust.

Long-term investors should closely monitor Snowflake's progress in monetizing its AI initiatives. Key metrics to watch include the growth in AI-specific revenue, the expansion of its customer base using AI capabilities, and the sustained net revenue retention rate. If Snowflake can demonstrate that its AI investments are translating into reaccelerated, sustainable growth and improved profitability, the current valuation could prove attractive.

Conversely, those with a lower risk tolerance should be wary of the high valuation and the intense competitive pressures. The software sector as a whole is undergoing a re-evaluation, and companies that cannot clearly articulate their path to profitable AI monetization may continue to face headwinds. Snowflake's next earnings report on February 25, 2026, will be a critical test, offering further insights into whether its strategic bets are paying off and if investor confidence can be restored.

Snowflake remains a leader in the data cloud space, but its journey to fully capture the AI data platform market will be challenging. Investors must weigh the company's strong foundational technology and AI potential against its current unprofitability, premium valuation, and the fierce competition from hyperscalers and specialized AI players. This is a high-stakes game where execution will be paramount.

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