Snowflake Earnings Preview: 50% EPS Increase and $1.09 Billion Revenue Expected

Snowflake (SNOW) is expected to report a 50% increase in earnings per share to $0.27 and $1.09 billion in revenue in Q2. However, the company may face declining margins due to AI infrastructure costs. Analysts project an average price target of $233.55, with a potential upside of 19.29%. Fifty-one brokerage firms endorse the stock with a consensus recommendation to "Outperform." The GF Value is projected at $328.01, indicating a 67.54% potential upside.

Snowflake (SNOW) is set to release its second-quarter fiscal 2026 results on August 27. Analysts anticipate a 50% increase in earnings per share (EPS) to $0.27 and $1.09 billion in revenue, indicating robust growth. However, the company may face declining margins due to escalating AI infrastructure costs.

Growth Highlights
Snowflake's AI capabilities have driven significant growth. The company reported 18.8% year-over-year growth in the number of customers, reaching 11,578 in the first quarter of fiscal 2026. Its rich partner base, including major players like Microsoft (MSFT), Amazon (AMZN), and NVIDIA (NVDA), has expanded its clientele. Snowflake's AI Data Cloud, which integrates core capabilities with Apache Iceberg tables and features like Snowflake Copilot, has gained traction, with over 5,200 accounts using machine learning features weekly [1].

Challenges Ahead
While Snowflake's growth is impressive, profitability remains a challenge. The company expects a 100-basis-point (bps) decline in non-GAAP product gross margin to 75% in the second quarter of fiscal 2025, primarily due to increased GPU costs for AI features. This is a near-term drag but is expected to stabilize margins at ~75% for the full year [2].

Valuation and Recommendations
Snowflake shares have appreciated 27.4% year-to-date compared to the Zacks Computer & Technology sector's return of 12.4% and the Zacks Internet Software industry's 19.4% growth. However, the stock is trading at a premium, with a forward 12-month Price/Sales ratio of 12.93X, higher than the industry's 5.7X. Fifty-one brokerage firms endorse the stock with a consensus recommendation to "Outperform," and the GF Value is projected at $328.01, indicating a 67.54% potential upside [1].

Conclusion
Snowflake's long-term prospects are promising, driven by its innovative portfolio and strong AI capabilities. However, the company faces stiff competition and stretched valuation, making the stock risky right now. Investors should monitor AI adoption rates, margin stability, and competitive differentiation to assess growth sustainability.

References
[1] https://www.nasdaq.com/articles/buy-sell-or-hold-snowflake-stock-key-tips-ahead-q2-earnings
[2] https://www.ainvest.com/news/snowflake-q2-earnings-ai-margin-progression-sustain-growth-momentum-2508/