What Can Stop Snowflake's Shares From Melting?

Cloud database software company Snowflake continues to struggle to lure investors, despite progress in revenue growth and earnings.

The company reported second-quarter revenue of $868.823 million, above the consensus estimate of $849.704 million. The company reported adjusted earnings of 18 cents per share, beating analyst predictions of 16 cents per share.

Yet Snowflake’s shares fell 10% in early-morning trading, representing a loss of investor confidence in the company after several rocky quarters. That record, and the departure of former CEO Frank Slootman in February, have raised doubts about the company’s future.

There’s also the elephant in the room: Snowflake rival Databricks is known to be gearing up for a gigantic initial public offering (IPO) and has recently made aggressive moves to cut into Snowflake’s turf with acquisitions and new products.

What Happened in the SNOW Quarter?

On the face of it, the quarter wasn’t that bad. For the quarter ending in July, Snowflake's revenue climbed 29% year-over-year (y/y). The company also increased its full-year revenue outlook to $3.36 billion as a result.

The ultimate reason why nobody wants to buy this stock will remain a mystery, but a number of theories abound. Here are a few we saw this morning in news reports and analyst research notes:

Macro debate. Raymond James analyst Simon Leopold pointed out in a research note that Snowflake’s revenue guidance assumes the macro environment remains stable. Snowflake’s business may be vulnerable to slowing cloud consumption from its customers, says Leopold.

Mixed guidance messages. Snowflake issued third-quarter and full-year guidance above consensus estimates by $1.8 million and $23.7 million, respectively, pointed out William Blair analyst Jason Ader. But Ader, writing in a research note, also added that some elements of guidance were “mixed.” He pointed out that management’s non-GAAP operating margin guidance of 3% was affected by higher sales commissions and higher R&D costs. So investors may have questions about the future of profit margins.

Cyber breach doubt. Leopold and others have pointed out that Snowflake was recently associated with a widely publicized data breach that caused reputational damage. “The effects on customer demand are unknown, but management noted it has not observed any material changes thus far from existing customers,” wrote Leopold.

Competition. Snowflake has seen growing competition in the cloud data services space. It’s got Databricks breathing down its neck, in addition to Amazon’s data services, including Redshift Serverless. Databricks’ recent strategy to leverage open-source tools such as Apache Iceberg have fueled more competitive risk.

Share Buyback and Customer Assurances

Meanwhile, Snowflake appears to be doing everything in its power to gain investor confidence. In addition to Snowflake’s strong earnings report and the fact that it raised guidance, it has launched a $2.5 billion share buyback program.

Recently installed CEO Sridhar Ramaswamy, who took over for departed CEO Slootman, has been hitting the media airwaves, telling CNBC’s Jim Cramer that the recent cyberattack on the company has not affected business.

"These headlines, and that's what they are, have not really affected our core business with existing or new customers," Ramaswamy told Cramer.

Raymond James’s Leopold remains optimistic that Snowflake can pull off a turnaround with new products and AI-oriented features. With these efforts, perhaps it can capture the holy grail of technology investing by tying itself to the AI trend.

“We see dry powder from new AI features such as Cortex and Copilot, which became generally available last quarter and are not included in management’s outlook, and longer term we consider Snowflake an on-ramp for enterprise adoption of AI," wrote Leopold in a research note.

Blair’s Ader points out that Snowflake still trades at a premium to the market, with an enterprise value-to-sales multiple of 10 times and enterprise value-to-free cash flow multiple of 42 times calendar 2025 estimates. But he also remains optimistic.

“While these multiples remain rich, we see room for upside to numbers given the resilience of the core data warehousing business, growing contribution from emerging products, and Snowflake’s opportunity to become a destination for building and working with AI/ML models and apps,” wrote Ader.

Maybe at some point the stock will stop going down and investors will catch a break. Progress in AI products as well as the development of the macro enterprise markets will be the two most important keys.