Snowflake Stock Is on Fire. But Can the Momentum Last?

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In the bustling landscape of 2025, it’s clear that Artificial Intelligence (AI) is a significant trend in investments. Unsurprisingly, Snowflake, a distinguished AI and data platform specialist (SNOW), has witnessed a remarkable surge in its shares this year. As I write, the stock has climbed an impressive 40% since the beginning of the year, outpacing the S&P 500’s growth of around 7%. The tech company’s heightened emphasis on AI and its robust revenue expansion have caught the eye of many investors.

However, are investor hopes perhaps overextended, given that the company continues to record substantial quarterly deficits, despite a market valuation of approximately $72 billion?

A true growth stock

In a transparent move, Snowflake’s financial losses are strategic to support their aggressive growth strategy, as articulated by CEO Sridhar Ramaswamy during the latest earnings call in Q1 FY 2026.

Just as is the case with most growth stocks, today’s investments are about the future.

The CEO emphasized that we’re enhancing our ability to act quickly and decisively to seize upcoming chances and maintain a consistent pace of growth.

So long as the company maintains its swift growth trajectory, investors might be lenient concerning losses. After all, the financial world anticipates that Snowflake could sustain such rapid expansion over a prolonged period.

The first-quarter sales of the company’s products, which surged by approximately 26% compared to the same period last year, nearing $1 billion, was quite significant. Notably, the growth rate exceeded what the management had anticipated. Prior to the quarter, the company had projected a growth of only 21% to 22%. The substantial disparity between Snowflake’s actual growth and the management’s projection might be one reason why the stock has performed exceptionally well this year.

Significantly, the management is optimistic that the AI and data platform firm’s business pace will persistently thrive in the second fiscal quarter. In contrast to previous forecasts, their latest projections indicate a projected 25% increase in yearly revenue for this specific period.

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Show me the money

Although it’s exciting to witness Snowflake’s swift revenue increase and their predictions for continued growth in Q2, investors ought not overlook the company’s unfavorable bottom line. In fact, Snowflake’s net loss is increasing instead of decreasing. To elaborate, during the first quarter of fiscal 2026, Snowflake reported a net loss of $430 million – significantly higher than its $318 million loss in the same period last year. More troubling, though, is the rising percentage of revenue being eaten up by this loss. The latest net loss equates to 41% of total revenue, compared to 38% in the previous year’s corresponding quarter.

As long as Snowflake’s losses continue growing at a significant rate relative to their sales, there are valid reasons for investors to question the longevity of the tech company’s business strategy.

In simpler terms, because Snowflake hasn’t shown much operational efficiency yet, their tech shares seem overpriced and might not be a good investment choice currently. Essentially, you could say the shares appear expensive. It’s possible that the stock continues to rise and those who don’t buy now miss out on potential gains. However, considering Snowflake’s considerable losses compared to its market capitalization of around $72 billion, it might be wise to wait for a drop in share price before investing, as this growth story may present an opportunity later on.

Investors might want to weigh the possibility of investing more in Snowflake, given its high valuation, if the company consistently and clearly shows signs of operational efficiency. If it succeeds, the shares could potentially outperform the S&P 500’s growth rate. However, achieving this is a significant hurdle. In case this doesn’t happen, investors should remember that it’s completely acceptable to appreciate the business while abstaining from purchasing its stock. Price is an essential factor. Regrettably, this growth stock is priced as if it’s flawless, despite its earnings trending downward.

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2025-07-23 12:25