Shattering market doubts, Snowflake's earnings report strongly raises full-year guidance, with stock price rising 13% in after-hours trading | Earnings Report Insights

AI data cloud platform company Snowflake announced its financial performance for the second quarter of fiscal year 2026 (ending July 31, 2025) on Wednesday. The company raised its product revenue forecast for fiscal year 2026, primarily due to enterprises continuing to increase spending on artificial intelligence, driving strong growth in demand for its data analytics services, alleviating market concerns about economic slowdown and emerging AI companies capturing market share potentially impacting traditional software vendors. Following the announcement, the company's stock price rose by as much as 13% in after-hours trading.

Here are the key points from Snowflake's second quarter financial report:

Key Financial Data:

Product Revenue: Snowflake's second quarter GAAP and non-GAAP revenue both reached $1.0905 billion, exceeding market expectations of $1.04 billion, a year-on-year increase of 32%.

Product Gross Profit: Snowflake's second quarter GAAP gross profit was $788.2 million, with a gross margin of 72%; non-GAAP gross profit was $833.6 million, with a gross margin of 76%.

Operating Loss: Snowflake reported a GAAP operating loss of $340.3 million in the second quarter, with an operating margin of -30%; non-GAAP operating profit was $127.6 million, with a margin of 11%.

Adjusted Earnings Per Share: Snowflake's adjusted earnings per share for the second quarter was $0.35, nearly double that of the same period last year, and higher than analysts' estimate of $0.27.

Cash Flow from Operating Activities: Snowflake's cash flow from operating activities in the second quarter was $74.9 million, accounting for 7% of revenue.

Free Cash Flow: Snowflake's unadjusted free cash flow for the second quarter was $58.2 million, accounting for 5% of revenue; adjusted free cash flow was $67.8 million, accounting for 6%.

Performance Guidance:

Third Quarter Product Revenue: Snowflake expects third quarter product revenue to be between $1.125 billion and $1.130 billion, exceeding market expectations of $1.12 billion, with a year-on-year growth rate of 25% to 26%. The non-GAAP operating margin is expected to be 9%.

Full Year 2026 Revenue: It is expected to reach $4.395 billion, higher than analysts' expectations of $4.34 billion, with a year-on-year growth of 27%, an upward revision from the previous expectation of $4.33 billion.

Full Year 2026 Product Gross Margin (Non-GAAP): Expected to be 75%.

Full Year 2026 Operating Margin (Non-GAAP): Expected to be 9%.

Full Year 2026 Adjusted Free Cash Flow Ratio: Expected to be 25%.

Snowflake stated that as of the end of July, its net revenue retention rate was 125%. The number of high-value customers continues to rise, with the company currently having 654 customers whose product consumption exceeded $1 million in the past 12 months, a year-on-year increase of 30%. Additionally, among Snowflake's global customers, there are 751 companies from the Fortune Global 2000, a year-on-year increase of 5%

In addition, the company stated that as of the end of the second fiscal quarter, the remaining performance obligations (RPO) not yet fulfilled amounted to $6.9 billion, exceeding the average analyst expectation of $6.78 billion, and representing a year-on-year growth of 33%. This metric reflects the volume of future committed orders from customers.

After closing at $200.39 on Wednesday, Snowflake's stock price rose by as much as 13% in after-hours trading. On the same day, another data-focused software company, MongoDB Inc., also surged 38% due to strong earnings, boosting the overall atmosphere of the software sector.

The market was concerned that new AI vendors would seize market share, with stock prices down 9% over the past month

Media reports indicate that Wall Street has recently become increasingly skeptical of traditional software companies, fearing that customers may turn to new vendors focused on AI. Although Snowflake focuses on data organization and analysis, and its platform is compatible with various new AI models, it initially avoided some of the skepticism. However, the overall weakness in the software sector has made it difficult for the company's stock price to remain unaffected.

As of Wednesday's close, Snowflake has risen nearly 30% year-to-date, outperforming most peers, but it has still fallen 9% over the past month. Mizuho Securities analyst Jordan Klein noted in a report released before the earnings report:

"Snowflake remains one of the most favored software stocks, but buyer positions are rapidly declining as funds are withdrawing from the sector as a whole, regardless of corporate performance or outlook."

Additionally, Databricks Inc., widely regarded as Snowflake's biggest competitor, announced a new round of financing last week, with the company's valuation exceeding $100 billion. D.A. Davidson analyst Gil Luria pointed out before the earnings report that market concerns about this competitor have eased over the past year.

Strong earnings report alleviates concerns

Snowflake's impressive performance in the second fiscal quarter undoubtedly alleviated market concerns about economic slowdown and the potential impact of emerging AI companies seizing market share from traditional software vendors.

Analysts believe that as more companies accelerate the adoption of AI software and invest more funds in upgrading data infrastructure, Snowflake stands to benefit significantly. Wall Street is generally optimistic about Snowflake's growth prospects. Last week, Bank of America upgraded the stock rating from "neutral" to "buy," setting a target price of $240.

Before the earnings report, surveys released by Bank of America and Jefferies showed that Snowflake's customer spending continues to grow, and partners have raised their expectations for future growth. Jefferies analyst Brent Thill stated before the earnings report that Snowflake is "one of our most favored AI explosive stocks and a reliable data infrastructure platform in the AI era."Analysts point out that more and more organizations are beginning to formulate generative AI (GenAI) strategies and develop related applications, and Snowflake will become the natural choice for customers when simplifying AI analytical architecture.

Snowflake is working hard to develop new products that make it easier for users to utilize generative AI technology on its platform. CEO Sridhar Ramaswamy stated in a statement:

"An increasing number of customers are building their core businesses on the Snowflake platform, with over 6,100 accounts using Snowflake's AI products each week. Customers favor our platform because of its ease of use, strong data connectivity, and reliability. We are at the forefront of a huge market opportunity and will continue to help every business unleash its full potential through data and AI."