The latest earnings season has shown so far that the demand for artificial intelligence (AI) applications remains robust despite the macroeconomic uncertainty posed by the tariff-fueled turmoil that has increased the risk of a global recession.
Meta Platforms, for instance, raised its capital expenditure forecast for 2025 to shore up its AI infrastructure, while Microsoft pointed out that the demand for its AI solutions is exceeding supply. AI software specialist Palantir Technologies is the latest company to join this bandwagon as it recently raised its full-year revenue forecast.
It won't be surprising to see Snowflake (SNOW +1.68%) join its AI peers and deliver a solid set of results on May 21, especially considering that the data cloud platform provider's AI offerings are gaining solid traction among customers. Snowflake stock rallied 29% in the past month, and there is a good chance that this rally will get a shot in the arm following its upcoming results.
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Snowflake's healthy revenue pipeline could help it deliver stronger-than-expected results
Snowflake's data cloud platform allows customers to store and consolidate data into a single source of truth. Its customers can then use the stored data to derive insights, build applications, or share the data. The company has been offering AI solutions to its data cloud customers of late, allowing them to connect their data with large language models (LLMs) so that they can build, train, and deploy AI models and agents.
NYSE: SNOW
Key Data Points
The good news for Snowflake investors is that its AI offerings are gaining traction among customers. Management remarked on the company's February earnings conference call that more than 4,000 of its customers use its AI and machine learning technology on a weekly basis. That opens up the possibility of more Snowflake customers adopting its AI solutions in the long run. It ended fiscal 2025 with just over 11,000 customers.
Importantly, the growing adoption of Snowflake's AI solutions is boosting the company's revenue pipeline. This is evident from the 33% year-over-year increase in the company's remaining performance obligations (RPO) at the end of fiscal Q4 2025 (ended Jan. 31, 2025) to $6.9 billion. The jump in this metric exceeded the company's quarterly product revenue growth by 5 percentage points, suggesting that Snowflake is gaining new customers at a faster pace than the pace it fulfills its existing contracts. RPO refers to the total value of a company's unfulfilled contracts at the end of a period. It won't be surprising to see Snowflake's fiscal 2026 first-quarter results, which will be released on May 21, exceeding expectations. The company has guided for a 21.5% year-over-year increase in product revenue for the quarter to $957.5 million.
The fact that its AI data cloud platform helps it attract more customers, apart from encouraging existing ones to spend more, could help it easily deliver better numbers. After all, Snowflake's customer base increased by almost 19% year over year in the last reported quarter, and its net revenue retention rate stood at 126%. The net revenue retention rate is reached by dividing the company's product revenue at the end of a quarter by the product revenue generated by the same customer cohort in the prior-year period. Given that this metric was well above 100% in the fourth quarter of fiscal 2025, it can be concluded that the adoption of Snowflake's AI solutions by its existing customers remains robust.
Importantly, there is a possibility that Snowflake could raise its guidance as well because of its fast-improving RPO and the growing demand for AI solutions in the cloud. After all, Snowflake expects its total addressable market (TAM) to grow to a whopping $342 billion in 2028, and its trailing-12-month revenue of $3.6 billion indicates that it is scratching the surface of a massive growth opportunity.
The company's robust earnings growth could translate into healthy stock price gains
Snowflake stock's 12-month median price target of $201, as per 49 analysts covering the stock, indicates that it could jump 20% in the next year. However, it could do better than that, considering the potential improvement in its bottom-line growth. Consensus estimates project a 40% jump in the company's bottom line in fiscal 2026 to $1.16 per share.
What's more, the company is forecast to sustain a 35%-plus earnings growth rate over the next couple of fiscal years as well.
Data by YCharts.
The good part is that Snowflake could clock stronger earnings growth as it has the potential to improve its margins by cross-selling its AI offerings to its existing customer base, a large portion of which has yet to use its AI solutions. Meanwhile, the large addressable market means that this AI stock is well placed to maintain healthy levels of growth for a long time to come.
All this makes Snowflake an attractive buy going into its upcoming earnings report, as there is a solid chance that its impressive rally could get a nice shot in the arm on the back of strong numbers and guidance.
