Snowflake Trades at a Premium Valuation: Hold or Fold the Stock?

Snowflake SNOW shares are overvalued, as suggested by a Value Score of F. In terms of the forward 12-month Price/Sales (P/S), SNOW is trading at 15.63X, a premium compared with the Zacks Internet – Software industry’s 3.76X.

SNOW Valuation

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However, Snowflake shares have risen 40.2% in the year-to-date period, outperforming the broader Zacks Computer & Technology sector’s increase of 11.7% and the Internet Software industry’s decline of 11.4%.

The outperformance can be attributed to SNOW’s strong adoption and increasing usage of its platform, as reflected by the net revenue retention rate of 126% in the first quarter of fiscal 2027. 

In the first quarter of fiscal 2027, Snowflake reported 13,912 total customers and added 616 net new customers, up 38% year over year, including 13 new Forbes Global 2000 customers. The company now has 779 customers spending more than $1 million annually, up 29% year over year, and the number of customers spending more than $10 million annually increased to 64.

SNOW Stock Performance

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SNOW Benefits From Strong Enterprise AI Push

SNOW is benefiting from the accelerating adoption of enterprise AI, which is fundamentally reshaping how organizations operate and innovate. The company’s strong focus on AI security and governance, which is rapidly becoming a key differentiator in the enterprise AI landscape, has been noteworthy.

Snowflake’s AI products, which include Snowflake Intelligence and Cortex Code (CoCo), are seeing rapid adoption, with CoCo already in use by more than 7,100 accounts. These products allow both business users and developers to interact with enterprise data and build AI-powered applications directly within Snowflake, all while maintaining strict governance. With the intended acquisition of Natoma, Snowflake is extending its agentic control plane to everyday business applications, enabling users to perform tasks like sending emails or summarizing Slack conversations within a governed environment.

Building on this momentum, in July 2026, Snowflake introduced Cortex AI Gateway and a suite of AI security innovations to help enterprises securely deploy and manage AI agents while monitoring AI consumption costs. The new gateway provides centralized governance for both Snowflake-native and third-party AI agents, enabling secure access to models, tools and enterprise systems. 

Snowflake also unveiled integrations with partners including Okta, SailPoint and 1Password to strengthen identity, governance and auditing capabilities. The enhancements expand Snowflake's zero-trust security framework, helping organizations improve visibility, control AI spending and scale agentic AI workloads across enterprise environments.

SNOW Offers Positive Guidance

Snowflake’s rich partner base and innovative AI portfolio are expected to drive the company’s top-line growth.

The Zacks Consensus Estimate for the fiscal second-quarter revenues is currently pegged at $1.47 billion, indicating 28.39% year-over-year growth. 

The consensus mark for earnings is currently pegged at 45 cents per share, which has remained unchanged over the past 30 days. This suggests an increase of 28.57% year over year.

Snowflake Inc. Price and Consensus

Snowflake Inc. price-consensus-chart | Snowflake Inc. Quote

SNOW Grapples With AI Competition and Margin Drag

Despite Snowflake’s expanding AI portfolio and partner base, the company competes with large cloud platforms and other data platforms that bundle data warehousing, analytics, and AI capabilities. The company is facing stiff competition from major players like Oracle ORCL, Alphabet GOOGL and Amazon AMZN, which are also expanding their footprint in the AI space.

Oracle’s expanding portfolio has been noteworthy. In June 2026, Oracle introduced Oracle OPERA Cloud Assistant, a suite of AI-powered capabilities built into OPERA Cloud that automates guest room assignments, generates AI-driven rate descriptions, supports multilingual operations across 230 countries and territories and gives hotel staff real-time operational guidance.

Alphabet is expanding in cloud computing as enterprises adopt AI infrastructure, AI solutions and security products. In the second quarter of 2026, Google Cloud revenues increased 82% year over year to $24.77 billion. Cloud backlog reached $514 billion, increasing by more than $50 billion sequentially. Alphabet expects to recognize slightly more than half of this backlog as revenues over the next 24 months. Nearly 90% of Fortune 100 companies now use Gemini Enterprise.

Amazon’s cloud computing platform Amazon Web Services' AI business and its chips business spanning Graviton, Trainium and Nitro each surpassed a $25 billion annualized revenue run rate, with both growing at triple-digit percentage rates year over year. In second-quarter 2026, Amazon continued gaining momentum with Trainium, securing multi-year, multi-gigawatt commitments from leading AI labs, including OpenAI and Anthropic, while expanding adoption across AI startups and enterprises.

Snowflake suffers from the variability of consumption as customers optimize spend and AI products that carry lower gross margins than the core platform. Integration and hiring tied to acquisitions also weigh on free cash flow margins. Snowflake expects a 150-basis-point drag to its non-GAAP adjusted free cash flow margin from the Observe acquisition, and management reiterated this impact in its fiscal 2027 outlook.

What Should Investors Do With SNOW Stock?

Despite SNOW’s robust portfolio, the company suffers from challenging macroeconomic uncertainties and variability of consumption as customers optimize spending on AI products that carry lower gross margins than the core platform.  Stiff competition and stretched valuation also remain concerns.

SNOW currently carries a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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