Is Snowflake (SNOW) a Buy After Beating Earnings but Falling Share Price?

Snowflake (NYSE: SNOW) has long been a poster child for the cloud data revolution, but its recent performance has left investors scratching their heads. The company reported Q3 2025 product revenue of $900 million, a 29% year-over-year increase, driven by robust adoption of its AI feature family, particularly Snowflake Cortex. Despite this strong earnings beat, the stock price fell post-announcement, raising the question: Is Snowflake still a compelling long-term investment, or has the market already priced in all the good news?

Evaluating Long-Term Business Quality

Snowflake's ability to sustain its growth trajectory hinges on two critical factors: product differentiation and customer retention. The company's AI Data Cloud, powered by Cortex, has clearly struck a chord with clients. According to a report by Business Wire, Snowflake's Q3 product revenue growth outpaced its full-year guidance, and its net revenue retention rate held steady at 125%. This metric, a bellwether for SaaS companies, suggests that existing customers are not only staying but also increasing their spending-a strong indicator of product stickiness.

Moreover, Snowflake's updated full-year product revenue guidance for fiscal 2026 now stands at $4.446 billion, reflecting a 28% year-over-year growth rate. This upward revision underscores confidence in the company's ability to capitalize on the AI-driven data analytics boom. However, the path to sustained growth is not without challenges. The cloud data warehouse market is becoming increasingly competitive, with rivals like Amazon Redshift and Google BigQuery investing heavily in AI capabilities. Snowflake must continue innovating to maintain its first-mover advantage.

Valuation Sustainability: A Double-Edged Sword

Snowflake's valuation remains a contentious issue. The stock trades at a Price-to-Sales (P/S) ratio of 21.47 and a Price-to-Book (P/B) ratio of 37.86, both near historical highs. While these multiples reflect the market's optimism about Snowflake's AI-driven future, they also highlight a stark disconnect between revenue growth and profitability. The company's non-GAAP operating margin improved to 6% in Q3 2025, but its earnings per share (EPS) remain negative at -$4.15, and its P/E ratio is over 100x projected earnings.

Analysts are split on whether this valuation is justified. A moderate buy sentiment is reflected in the average target price of $274.37, according to GuruFocus https://www.gurufocus.com/news/3232536/snowflake-snow-reports-impressive-q3-revenue-growth. However, Seeking Alpha warns that Snowflake's valuation is "running way too hot" amid slowing growth in some segments https://simplywall.st/stocks/us/software/nyse-snow/snowflake. This tension between revenue momentum and profitability raises a critical question: Can Snowflake's AI-driven growth story continue to justify its sky-high multiples, or is a correction inevitable?

AI-Driven Growth: Promise and Peril

The elephant in the room is Snowflake's reliance on AI to fuel its next phase of growth. The company's Cortex suite, which includes AI-powered data preparation, querying, and governance tools, has been a key differentiator. According to internal data, Cortex now accounts for over 30% of Snowflake's new feature usage. This is significant because AI adoption is still in its early stages, and companies that can scale these tools effectively stand to capture massive market share.

However, the AI arms race is intensifying. Competitors are rapidly catching up, and the cost of R&D to maintain a leadership position is substantial. Snowflake's non-GAAP operating margin improvement to 6% https://stockstory.org/us/stocks/nyse/snow/news/earnings/snowflake-nysesnow-beats-q3-cy2025-sales-expectations-but-stock-drops is a positive sign, but it remains to be seen whether the company can translate AI-driven revenue growth into consistent profitability.

The Verdict: Buy, Wait, or Walk Away?

Snowflake's Q3 results demonstrate that the company remains a leader in the AI data cloud space, with strong customer retention and a clear product roadmap. The updated guidance for 2026 suggests management is optimistic about its ability to scale Cortex and maintain growth. Yet, the stock's recent price drop-despite beating earnings-signals growing skepticism about whether the valuation is sustainable.

For long-term investors, Snowflake could still be a buy, but with caution. The company's AI-driven growth potential is real, but the path to profitability is uncertain. Investors must weigh the risks of a valuation correction against the rewards of capturing a market that is still in its infancy. For now, Snowflake remains a high-conviction play, best suited for those with a multi-year time horizon and a tolerance for volatility.