Snowflake Update: Challenges Ahead as AI Hype Cools and Buffett Exits

Snowflake's once-unstoppable momentum has hit a snag. While its core business remains strong, recent events have injected a dose of reality into its outlook. A high-profile data breach, a cooling AI hype cycle, and Warren Buffett's decision to exit his stake have all cast a shadow on the data platform company's near-term prospects. Its stock is now down more than 50% from its peak just six months ago, prompting investors to reassess its valuation, security, and AI strategy.

The Buffett Effect: A Shift Toward Value?

Berkshire Hathaway's move to completely divest its nearly $1 billion Snowflake stake, which represented approximately 6 million shares at an average Q1 2024 price of $170, has been widely reported. While no specific reason was given, the decision aligns with a broader trend of investors becoming more discerning about valuation, particularly for high-growth, yet unprofitable, tech companies like Snowflake.

This, coupled with Berkshire's increased focus on cash and U.S. Treasuries, suggests a preference for value over speculative growth in the current uncertain economic climate. 

AI Hype Cooldown: Show Me the Money

Throughout 2023, Snowflake skillfully rode the AI wave, positioning its data platform as mission-critical for AI development. However, while semiconductor companies are experiencing a surge in demand driven by AI, the story for software providers like Snowflake is more nuanced. The AI hype has plateaued, with investors demanding tangible evidence of how AI is driving revenue growth and margin expansion.

"[You're] not gonna see any of the software companies benefit from AI this year because they're all buying into AI," said Brent Thill of Jefferies during a Yahoo Finance interview. "[Snowflake's] margins are way down this year as they're investing in AI." This highlights the investment-heavy phase Snowflake is currently in, with returns expected to lag.

Adding to the pressure, analysts are raising concerns about Snowflake's progress in developing competitive AI products, especially in the face of rivals like Databricks. "The follow through to consumption revenue from newer features and AI investments remains the bigger question for investors," noted Brad Zelnick of Deutsche Bank. "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."

Ironically, Snowflake's success in securing multi million-dollar accounts from clients like Disney and DoorDash without heavily relying on AI further amplifies this concern. This success, while impressive, raises the bar for Snowflake, forcing the company to demonstrate a clear return on its AI investments and prove that AI is truly driving incremental value for its clients.

Data Breach Fallout: Rebuilding Trust

Snowflake's insistence that its platform wasn't directly at fault for the AT&T data breach is now being challenged in court. The company faces a number of class-action lawsuits across multiple states, with plaintiffs alleging negligence and inadequate security measures that led to the compromise of personally identifiable information for potentially hundreds of millions of individuals. Major Snowflake clients, including Ticketmaster, Santander Bank, Neiman Marcus Group, and Advance Auto Parts, have been swept up in the legal maelstrom, some even named as co-defendants. 

Adding to the pressure, a U.S. Senate subcommittee is demanding a detailed accounting of the breaches, Snowflake's response, and steps taken to support affected individuals.

“Based on its assessment of stolen Snowflake passwords, Mandiant (a cybersecurity firm) reported that 160 other organizations could have been targeted in the hacking campaign,” the letter from the Senate subcommittee stated. “Given that multiple accounts containing a significant amount of data were illicitly accessed, why did Snowflake not detect the breaches in time to prevent the theft of customer data?” 

Snowflake must now navigate the legal landscape while addressing serious questions about its security practices and its responsibility for safeguarding client data.

Beyond the Data Warehouse: Snowflake's Evolving Product Strategy

Snowflake's challenges are also partly a consequence of its ambitious product expansion. The company is transitioning from a single-focused data warehousing platform to a comprehensive AI data cloud offering a suite of products, including Snowpark, Cortex AI, and Iceberg Tables.

This strategic shift aims to capture a larger share of the data market and address a wider range of customer needs. However, this expansion comes with growing pains:

• Increased Complexity: Managing a broader product portfolio requires significant resources and expertise.
• Integration Challenges: Ensuring smooth integration between different products and maintaining a consistent user experience can be complex.
• Market Education: Educating customers on the value proposition of new products and encouraging adoption takes time and effort.

Snowflake's ability to successfully navigate this transition will be critical for its long-term success. 

The Road Ahead: From Pit Stop to Long-Term Race

Despite the challenges, Snowflake continues to deliver strong financial performance, with Q2 2025 results showing a 30% year-over-year increase in product revenue (reaching $829 million) and 48% RPO growth (hitting $5.2 billion). However, the company faces a critical juncture:

• Demonstrating AI ROI: It's not enough to be "in the AI game"; Snowflake needs to showcase how its products are driving concrete financial benefits for clients.
• Playing the Long Game: Snowflake is "changing the carburetor in the car," and going through a period of transition and optimization. The acceleration in RPO suggests that patience may well be rewarded. But competition looms, with Databricks, still private, identified as a significant threat.