Snowflake Q2 Revenue Tops Guidance on AI Product Adoption

Snowflake reported second-quarter results on September 2 that exceeded internal targets, with total revenue growth accelerating to 35%. This outperformance was primarily fueled by the rapid adoption of its new artificial intelligence offerings, Cortex Code and CoWork, which were introduced earlier in the fiscal year. The company’s ability to convert enterprise interest in AI into tangible account expansion has shifted the narrative from speculative potential to measurable revenue contribution.

The financial impact of this adoption is evident in the company’s margin profile and customer base composition. Snowflake posted a non-GAAP operating margin of 15.3%, a 280 basis point improvement over its guidance. Furthermore, the average account size is expanding as more customers upgrade their spending tiers, indicating that the AI tools are serving as a catalyst for deeper integration into enterprise data stacks rather than standalone add-ons.

AI Products Drive Account Expansion

Adoption of Snowflake’s AI suite has outpaced internal projections. More than 60% of the company’s active accounts now utilize Cortex Code, while nearly 40% have adopted CoWork. Cortex Code specifically added over 2,000 new clients during the quarter. This widespread usage has contributed to a significant shift in the customer base, with the number of clients spending at least $1 million annually more than doubling over the past three years. This growth in high-value accounts occurred even as the total customer count grew by only 70% in the same period, highlighting a strategy focused on deepening existing relationships rather than just broadening the top line.

The resilience of Snowflake’s business model is further underscored by its net revenue retention rate, which stood at 126%. This figure suggests that existing customers are not only retaining their subscriptions but are increasing their spend, largely due to the added value of the AI capabilities. The company attributes this sustained growth to the growing enterprise AI market, which provides a strong tailwind for its data platform. This momentum supports the firm’s forecast of 32% revenue growth over the next three years, driven by the synergies between its core data warehousing products and its expanding AI portfolio.

Valuation Adjustments and Profitability Targets

In response to the stronger-than-expected AI-driven growth and margin improvements, analysts have revised their fair value estimates for the company. Morningstar raised its fair value estimate for Snowflake to $284 per share from $255. This adjustment incorporates the stronger AI tailwind that benefits both revenue growth and margin expansion. Despite this upward revision, the firm maintains a 3-star rating, indicating that the stock is fairly valued relative to its long-term potential. The new valuation implies a fiscal 2027 enterprise value-to-sales multiple of 15 times, reflecting the market’s recognition of Snowflake’s position in the $450 billion analytical database market.

Management has set a goal to achieve GAAP profitability by the fourth quarter of fiscal 2028. However, analysts note that this target is ambitious unless share-based compensation as a percentage of revenue drops to approximately 20%. The company currently holds a no-moat rating, as its revenue scale does not yet support simultaneous high return on invested capital and continuous expansion investments. While Snowflake’s data ecosystem shows potential for two-sided network effects between users and developers, it will take time for these dynamics to mature into a durable competitive advantage. The long-term outlook depends on whether the company can sustain its growth momentum as enterprise enthusiasm for agentic AI potentially cools, which could lead to tougher competition for its share of the market.