Snowflake Revenue Rises 37% on AI Demand

Revenue rose 37% in the latest quarter, above the 35% analysts had expected, and management lifted its outlook again. The company also beat on the bottom line for a fifth straight quarter and reported a net revenue retention rate of 126%, a sign existing customers are spending more over time. Adjusted operating margin improved to a little over 15% from 11% a year earlier, showing that the growth is not coming entirely at the expense of efficiency.

The biggest driver appears to be AI. Management said AI workloads accounted for roughly half of the growth acceleration, underscoring Snowflake’s role as a data layer for model training and inference. As enterprises move more workloads into AI, Snowflake’s consumption-based pricing model becomes more attractive because customers pay for usage rather than fixed licenses. That has been a headwind in slower periods, but in an AI buildout it is turning into a lever for upside.

Still, the market’s enthusiasm is built on expectations that are now much higher. Snowflake trades at about 20 times forward sales and roughly 80 times free cash flow, rich even by large-cap software standards. Stock-based compensation remains close to 30% of revenue, and dilution rose more than 4% over the past year. Management also guided to a modest gross margin dip, even if margins remain high by software industry standards.

For investors, the question is whether this quarter marks a durable inflection or another strong stretch that eventually meets valuation gravity. The bull case is that AI-related data demand keeps expanding, retention stays elevated and Snowflake continues to turn scale into profit. The bear case is that AI usage normalizes, consumption growth cools and the stock, already near record territory, leaves little room for disappointment.

The next test will be whether Snowflake can sustain this acceleration into fiscal 2027 without sacrificing margins or relying too heavily on stock-based pay. If it can, the rally may still have room to run. If not, the valuation will do the work that slower growth once did.