NRR rose for the first time after declining for 13 consecutive quarters, Snowflake transformed into an "AI data platform," and enterprise customers "have no AI without data."

After experiencing 13 consecutive quarters of declining Net Revenue Retention (NRR), the cloud data platform company Snowflake has finally seen a turnaround.

The latest financial report shows that Snowflake's NRR has rebounded from 124% to 125%, and product revenue growth has accelerated from 26% to 32%, marking the initial success of its transformation into an AI data platform.

According to news from the Wind Trading Desk, Bank of America analyst Brad Sills pointed out in a recent research report that this performance improvement is mainly due to Snowflake's strong performance in the core analytics market. This performance validates the judgment that Snowflake is transforming into a true AI data platform for large enterprises, laying the foundation for larger-scale expansion transactions in the future.

Morgan Stanley analyst Sanjit K Singh's team also noted in the report that behind this series of positive signals is Snowflake's strategic positioning, which precisely addresses the biggest pain points of current enterprises: Without unified, high-quality data, effective AI capabilities cannot be developed.

As enterprise customers view Snowflake as an infrastructure encompassing various workloads such as data analytics, data science, collaboration, and even AI, the company is expected to benefit from the rapidly growing addressable market, and its competitive position and long-term growth potential are being reassessed.

NRR Bounces Back, AI-Driven Customer Base Expansion

Wall Street News previously mentioned that NRR is becoming a key touchstone for identifying AI software companies, with a figure above 100% not only reflecting existing customers' increased purchases and product stickiness but also serving as strong evidence of AI value realization.

In the latest financial report, Snowflake's NRR recorded its first quarter-on-quarter growth after 13 consecutive quarters of decline, rising slightly from 124% to 125%.

Bank of America pointed out that although Snowflake is vigorously promoting its new workloads such as AI and data science, its traditional core analytics business, which it was built upon, remains a solid engine for the company's growth. The strengthening of NRR is mainly attributed to robust customer expansion transactions in its core data analytics business.

Morgan Stanley stated that this growth is not only due to customers migrating to the cloud, but more importantly, enterprises recognize that without modernized data infrastructure, their AI ambitions cannot be realized.

As a result, enterprises are actively investing in data modernization and transformation plans. The Morgan Stanley report shows that approximately 6,100 customers (accounting for 50% of the customer base) use Snowflake's AI services weekly, and AI influenced 50% of new customer acquisitions in the second quarter.

The company's product revenue growth has also shown significant acceleration, with the year-on-year growth rate increasing from 26% to 32%. The report indicates that the new customer growth rate remains stable at 18%.

These data collectively paint a picture of healthy growth: Snowflake is not only attracting new customers but also driving existing customers to increase their spending, thereby reversing the downward trend of key metrics

Successful Transformation into an AI Data Platform

Snowflake's strong performance this quarter is fundamentally attributed to its successful evolution in market positioning.

Bank of America emphasizes that the market's perception of Snowflake is changing, no longer viewing it merely as a data warehouse, but as a comprehensive "data platform" capable of handling various workloads such as analytics, data science, collaboration, and AI.

This shift in positioning allows it to stand out in competition. The report suggests that customers may initially choose Snowflake for its core analytical capabilities but plan to add other workloads in the future, providing the company with greater customer expansion opportunities and growth potential.

Bank of America clearly states that the performance in the second quarter validates this view that Snowflake is moving towards becoming a true "data platform" among large enterprises.

Strong Profitability and Optimistic Investment Returns

Bank of America points out that strong free cash flow (FCF) is another highlight in Snowflake's financial report. The report describes it as "the fastest-growing free cash flow compounder among large-cap software," and expects a compound annual growth rate (CAGR) of 31% by fiscal year 2026.

Based on a 58 times price-to-earnings ratio for expected free cash flow in fiscal year 2026, Bank of America raises Snowflake's target price to $280. Bank of America explains that considering the sustainability of its growth and traction in the AI software market, this valuation premium "is not unreasonable," as the price-to-earnings ratio for large-cap software peers is about 28 times, with a growth rate of only 23%.

Morgan Stanley also believes that although the valuation is not cheap, Snowflake remains the best investment target for the data transformation theme, which is expected to become one of the highest priority budget plans for 2026 and beyond