Snowflake Earnings Preview: AI Momentum Faces Test Amid High Expectations

Snowflake (NYSE: SNOW) will report its Q1 FY2026 earnings after the bell today, and anticipation is high. Shares have rallied nearly 20% year-to-date, fueled by optimism around its AI Data Cloud strategy, strong customer base, and expectations of a continued top- and bottom-line beat streak. However, the company faces a complex macro backdrop and elevated expectations, particularly after Microsoft and other cloud peers delivered strong results. Investors will be focused not just on headline numbers but on key forward-looking metrics like remaining performance obligations (RPO), net revenue retention, and commentary on AI monetization and tariffs.

Analysts expect Snowflake to report revenue of approximately $1.01 billion, reflecting 21.3% year-over-year growth, and adjusted EPS of $0.21, up over 50% from the year-ago quarter. For product revenue, which is a core driver of performance, the Street is looking for $955 million. A print north of $980 million would likely be viewed favorably, while a miss could draw scrutiny given the run-up in the stock. Management's guidance for FY2026 currently calls for 24% growth, implying a reacceleration in the second half.

Key drivers this quarter include further adoption of Snowflake's AI offerings, particularly Snowpark and Cortex, and improving deal velocity after a period of lengthened sales cycles. Notably, AI Cloud momentum is rising as enterprises ramp data workloads. On the downside, checks suggest discretionary projects remain pressured. Importantly, Snowflake has historically delivered consistent beats, and bulls argue that ongoing R&D investment positions it to sustain innovation-led growth.

A critical metric to watch will be RPO, which hit a record $6.9 billion last quarter, up 33% year-over-year. RPO gives visibility into future revenue and is especially important in consumption-based models. Another item of interest will be net revenue retention (NRR), which has been under pressure, falling from 142% in Q2 FY2024 to 126% in Q4 FY2025. A further drop could raise red flags about customer churn and diminishing upsell potential.

The bull case for Snowflake rests on its platform differentiation, strong customer loyalty, and early-mover advantage in the AI data ecosystem. Bulls point to its deep integrations with Nvidia and Microsoft Azure, its 11 million autonomous rides through Apollo Go (far outpacing peers like Waymo), and a total addressable market (TAM) that management estimates at $300-400 billion. A discounted cash flow model from some bullish analysts assigns a valuation of $310 per share, suggesting 70% upside.

On the bear side, concerns are growing around slowing growth and elevated valuation. Revenue growth has moderated significantly from prior hypergrowth years, and NRR declines may signal deeper structural issues. Heavy stock-based compensation (SBC) remains a major overhang, with $428 million in quarterly SBC representing over 40% of revenue. Valuation multiples are also stretched, with a forward P/E above 150x and a price-to-sales ratio over 13x—levels that far exceed sector norms.

Valuation metrics underscore the risk-reward tradeoff. Snowflake's forward price-to-cash flow ratio stands at 56.5x (vs. sector median of 19.3x), and its PEG ratio is nearly 10x, indicating investors are paying a steep premium for growth that may no longer be accelerating. Some analysts argue that unless Snowflake can reignite 30%+ growth and expand margins meaningfully, the stock is priced for perfection.

Options markets reflect elevated expectations, with implied volatility suggesting a 10% move in either direction post-earnings. This positions the stock for potentially significant upside if it delivers on all fronts—or a sharp correction if results or guidance disappoint.

Investors will also be listening for any commentary on tariffs and how they may impact cloud consumption, pricing power, or customer sentiment. Snowflake management has previously said they're focused on diversifying supply chains and maintaining pricing competitiveness.

Bottom line: Tonight's print is pivotal. Snowflake will need to thread the needle on both execution and outlook. A beat-and-raise could extend its rally and validate the bull thesis, while a revenue miss, weak guidance, or further NRR deterioration could challenge the elevated valuation and spark downside. The stock is flying high—but expectations are, too.