Snowflake's Q2 2026: Contradictions Highlight Sales Hiring, AI Consumption, and Large Customer Growth

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 27, 2025

Financials Results

• Revenue: $1.09B product revenue, up 32% YOY (growth accelerated from last quarter)
• Gross Margin: 76.4% non-GAAP product gross margin
• Operating Margin: 11% non-GAAP operating margin, increased to 11%

Guidance:

• Q3 product revenue expected at $1.125–$1.13B (25–26% YOY).
• Q3 non-GAAP operating margin expected at 9%.
• FY26 product revenue raised to $4.395B (+27% YOY).
• FY26 non-GAAP product gross margin expected at 75%.
• FY26 non-GAAP operating margin expected at 9%.
• FY26 non-GAAP adjusted free cash flow margin expected at 25%.

Business Commentary:

• Revenue Growth and AI Integration:
• Snowflake reported product revenue of $1.09 billion for Q2, up 32% year-over-year.

• Growth was driven by strong demand for AI-related products and services, with AI influencing nearly 50% of new logos won in Q2.

• Increased Customer Acquisition and Retention:

• Snowflake added 533 new customers in Q2, including 15 Global 2000 companies.

• The increase in new customers was due to the company's strategic focus on expanding its go-to-market capabilities and effective customer retention strategies.

• Product Innovation and New Features:

• Snowflake launched approximately 250 new capabilities to general availability in the first half of the year.

• This innovation focused on AI, with products like Snowflake Intelligence and Cortex AI SQL driving significant customer interest and adoption.

• Operational Efficiency and Margin Expansion:

• Snowflake's non-GAAP operating margin increased to 11% in Q2, reflecting a focus on operational rigor.

• Margin expansion was supported by strategic investments in growth, efficient resource allocation, and revenue growth from new products.

• Cloud Provider Partnerships:

• Microsoft Azure was identified as the fastest-growing cloud for Snowflake, with 40% year-over-year growth.
• This growth was attributed to improved alignment between Snowflake's field and Microsoft's teams, as well as Azure's strong presence in EMEA.

Sentiment Analysis:

• Management highlighted accelerating growth (Q2 product revenue up 32% YOY), strong NRR (125%), record customer adds (533, with 50 crossing $1M TTM to 654 total), and raised FY26 product revenue guidance to $4.395B (+27% YOY). Azure was the fastest-growing cloud (+40% YOY). Non-GAAP operating margin improved to 11%, and product gross margin was 76.4%.

Q&A:

• Question from Sanjit Kumar Singh (Morgan Stanley): Is growth durable post data modernization, or is it a one-time migration tailwind?
  Response: Modernization is step one; AI needs AI‑ready data on Snowflake, so we’re early in a durable journey with sustained growth as AI-driven workloads expand.

• Question from Raimo Lenschow (Barclays): Is the Hunter/Farmer model contributing in Europe yet?
  Response: EMEA is developing and contributing, but most new customer adds still come from the U.S. as we replicate the motion in EMEA/APJ.

• Question from Karl Emil Keirstead (UBS): Did Microsoft/Azure contribute uniquely to the upside?
  Response: Azure was our fastest-growing cloud at +40% YOY due to stronger field alignment and EMEA strength; AWS remains largest.

• Question from Kirk Materne (Evercore ISI): How are newer products reflected in 3Q guidance?
  Response: New features outperformed; we included a modest contribution and guide based on current consumption trends; Q2 was stronger than expected.

• Question from Aleksandr J. Zukin (Wolfe Research): Was outperformance normalization or inclusion in AI budgets?
  Response: Core analytics is strong (NRR 125%); AI budgets are increasingly allocated to Snowflake projects, and we expect this to continue and be reflected in forecasts.

• Question from Kasthuri Gopalan Rangan (Goldman Sachs): When does consumer-style AI magic hit the enterprise, and thoughts on Spark support?
  Response: Enterprise AI value is accelerating via Snowflake Intelligence with top models (e.g., GPT‑5) on enterprise data; Spark Connect lets customers use Spark APIs while Snowpark executes for performance/cost gains.

• Question from Brent John Thill (Jefferies): You raised the guide more than the beat—what drives second-half visibility?
  Response: Consumption is strong and consistent; we’ve raised by beat-plus for six quarters, with 250 GA features this year driving incremental revenue.

• Question from Mark Ronald Murphy (JPMorgan): What’s behind the large S&M hiring and expected capacity ramp?
  Response: We hired more net S&M in six months than the prior two years combined, focusing on rep productivity, SEs, and specialists; hiring is first-half weighted.

• Question from Brent Alan Bracelin (Piper Sandler): How much of Q2 upside was core consumption vs. new AI/products?
  Response: Upside was primarily core, with large migrations; newer workloads and Crunchy (Postgres) contributed modestly.

• Question from Tyler Maverick Radke (Citi): How are customers differentiating Snowflake vs. Databricks/hyperscalers/Palantir?
  Response: Snowflake is the leading AI data platform valued for simplicity, connectedness, and trust; we’re strong in analytics and expanding with Postgres, OpenFlow, Spark, ML, and AI.

• Question from Bradley Hartwell Sills (BofA Securities): Why did professional services jump this quarter?
  Response: A single large customer milestone recognition drove the increase; otherwise normal, with most services done by partners.

• Question from Michael James Turrin (Wells Fargo): Is NRR improvement durable as optimizations fade?
  Response: NRR ticked up from large customer migrations that temporarily lift consumption; optimizations are normal and not causing issues.

• Question from Brad Robert Reback (Stifel): Does migration activity look similar or larger in 2H?
  Response: We have strong line of sight to numerous go‑lives, including on‑prem and first‑gen cloud migrations, identified by SEs.

• Question from William Joseph Vandrick (Scotiabank): What’s the G2K opportunity and $1M+ customer mix?
  Response: A typical G2K could spend ~$10M/year; about ~50% of $1M+ customers are G2K; sales emphasizes business value over cost.

• Question from Matthew George Hedberg (RBC Capital Markets): Update on Crunchy integration and OLTP/OLAP progress?
  Response: Snowflake Postgres is progressing with enterprise features (keys, replication, continuity) and enters preview soon; customer interest is strong.

• Question from Patrick D. Walravens (Citizens JMP Securities): Are frontier models converging, and implications for Snowflake?
  Response: Models continue improving (e.g., code, agentic tool use); value comes from pairing them with enterprise data via Snowflake Intelligence; runway remains long.

• Question from Michael Joseph Cikos (Needham & Company): How will you monetize broad AI adoption without a huge sales push?
  Response: We enabled easy adoption; now scaling broad rollouts (e.g., sales assistant) with specialists on high‑value use cases; consumption grows as customers realize value.

• Question from Gregg Steven Moskowitz (Mizuho Securities): Are you seeing meaningful commitments to Cortex AI and what are the top use cases?
  Response: Yes—data agents unifying structured/unstructured data (e.g., Customer 360) with actions via agentic AI for HR, finance, sales, and client service.

• Question from John Stephen DiFucci (Guggenheim Securities): Sustainability of core analytics growth and potential disruption risks?
  Response: Core remains robust with large on‑prem migration runway; we’re investing in both core and AI, including faster migration tech, to stay ahead.