Snowflake SNOW shares have surged 21.7% year to date, outperforming the Zacks Computer and Technology sector’s appreciation of 1.6% and the Zacks Internet Software industry’s return of 19.3%. 

Snowflake’s prospects are robust, driven by a strong portfolio and an expanding partner base. The company has been benefiting from strong Artificial Intelligence (AI) adoption. At the end of the third quarter of fiscal 2025, SNOW had more than 1,000 deployed use cases. Currently, more than 3,200 accounts use SNOW’s AI and machine learning (ML) features.

Features, including interoperability and data transformation, have been gaining traction among clients. At the end of the fiscal third quarter, these features had a revenue run rate of more than $200 million. In this regard, partnerships with Microsoft MSFT and ServiceNow NOW has increased data interoperability as transfer of in and out of Snowflake has become much smoother.

SNOW Stock’s Performance

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Nevertheless, SNOW has been facing tough competition from rivals like Databricks, coupled with rising GPU-related costs, as the company is aggressively investing in AI initiatives. 

Snowflake shares are currently overvalued, as suggested by its Value Score of F. 

In terms of the 12-month price/sales (P/S), SNOW is trading at 13.98X, higher than its median of 12.40 and the industry’s 2.8X.

At such a high valuation, the question that arises is whether the SNOW stock still a worthy investment? Let us dig deep to find out.

Price/Sales Ratio (F12M)

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SNOW Rides on Strong Portfolio, Rich Partner Base

Innovations like Apache Iceberg and Hybrid tables, Polaris, Cortex Large Language Model and ML functions are helping it win new clients.

SNOW benefits from a strong partner base that includes major players like Amazon AMZN, ServiceNow, Microsoft, NVIDIA, Fiserv, EY, LTMindtree, Next Pathway and S&P Global. 

In collaboration with Amazon’s cloud arm, Amazon Web Services, Snowflake booked more than $3.9 billion over the trailing four quarters, which was up 68% compared with the preceding four quarters.

In partnership with Microsoft, the company has established a Snowflake Power Platform connector for Microsoft Power Platform, enabling bidirectional access between Dataverse and Snowflake’s AI Data Cloud. The connector simplifies data interoperability between Microsoft’s service suite, Dynamics 365 and the Snowflake AI Data Cloud.

SNOW’s partnership with Anthropic integrates advanced AI models into Cortex AI, supporting secure and flexible AI applications. These efforts are aimed at countering the fierce market competition and addressing pricing pressures in a rapidly evolving data platform market. 

Meanwhile, the planned acquisition of Datavolo strengthens Snowflake’s platform, offering enhanced support for structured and unstructured data while simplifying data engineering tasks. The buyout of Night Shift strengthens Snowflake’s federal footprint.

SNOW Offers Positive Guidance for Q4 and FY25

For the fourth quarter of fiscal 2025, Snowflake expects product revenues in the range of $906-$911 million. The projection range indicates year-over-year growth of approximately 23%.

The Zacks Consensus Estimate for fiscal fourth-quarter 2025 revenues is currently pegged at $952.67 million, indicating 22.97% year-over-year growth. 

The consensus mark for earnings is currently pegged at 17 cents per share, unchanged over the past 60 days and suggesting a decrease of 51.43% year over year.

For fiscal 2025, Snowflake expects product revenues to increase 29% year over year to $3.43 billion. The non-GAAP product gross margin is expected to be 76% and the non-GAAP operating margin is expected to be 5%.

The Zacks Consensus Estimate for SNOW’s fiscal 2025 revenues is pegged at $3.59 billion, indicating year-over-year growth of 28%. 

The consensus mark for earnings is pegged at 69 cents per share, unchanged over the past 30 days but suggests a decrease of 29.59% on a year-over-year basis.

SNOW has beaten the Zacks Consensus Estimate for earnings in three of the trailing four quarters and missed once, the average surprise being 35.39%.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

What Should Investors Do With SNOW Stock?

Snowflake stock is currently trading above the 50-day and 200-day moving averages, indicating a bullish trend.

SNOW Stock Trades Above the 50-Day & 200-Day SMA

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Snowflake benefits from a rich partner base, expanding clientele, strategically planned acquisitions and an innovative portfolio but is weighed down by competitive pressures and rising costs. 

Given the company’s modest growth prospects, as suggested by a Growth Score of C, we believe its valuation is significantly stretched, making the stock a risky bet for investors.

SNOW currently carries a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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