Snowflake Stock Stumbles Despite Earnings Beat as AI Concerns Persist

Snowflake Inc. (SNOW) shares took a tumble on Wednesday, plunging 14.7% despite reporting second-quarter earnings that beat analyst expectations. The stock's decline stemmed from a combination of a modest earnings beat and a guidance update that failed to quell investor worries about the company's AI strategy and the competitive landscape.

Snowflake reported adjusted earnings of 18 cents per share, exceeding analyst estimates of 16 cents per share. Revenue for the July quarter climbed 29% to $868 million, also exceeding the consensus forecast of $852 million. However, the company's guidance for the upcoming quarter, ending in October, proved less impressive. Snowflake projected product revenue in the range of $850 million to $855 million, aligning with analysts' expectations of $851 million.

"Q2 results showed some signs of consumption stabilization along with solid bookings, though with a slimmer revenue beat than likely required to catalyze the stock," noted Deutsche Bank analyst Brad Zelnick.

Analysts remain concerned about Snowflake's progress in developing AI-related products, particularly in the face of stiff competition from companies like Databricks. "The follow through to consumption revenue from newer features and AI investments remains the bigger question for investors," Zelnick added. "More tangible evidence is likely needed to alleviate concern that Snowflake is being negatively disrupted by fast-paced innovation occurring up and down the data/AI stack."

In a Yahoo Finance interview, Jefferies analyst Brent Thill highlighted the company's strong backlog growth, which increased over 40% year-over-year. This signals that Snowflake is securing new contracts and experiencing accelerated growth, pointing towards a potentially positive future. However, Thill acknowledges that the company's current transition towards a multi-product platform and increased AI investment will take time.

Snowflake’s new CEO, Shridar, is tasked with navigating the company through these changes and establishing a strong foothold in the AI market.

Despite the recent share price decline, some analysts remain bullish on Snowflake's long-term prospects. Thill argues that while the company is currently in a period of heavy investment, with suppressed margins as a result, it still represents a compelling buy opportunity for long-term investors. He points to the company's robust product roadmap and ongoing innovation, which he expects to drive significant growth in 2025 and 2026.

Key Data Points:

• Q2 Earnings: Beat expectations with adjusted earnings of 18 cents per share, exceeding analyst estimates of 16 cents.
• Revenue: Increased 29% year-over-year to $868 million, exceeding the consensus forecast of $852 million.
• Q3 Guidance: Product revenue projected to be between $850 million to $855 million, aligning with analysts' expectations of $851 million.
• Backlog Growth: Increased over 40% year-over-year, indicating strong customer demand and future revenue potential.