Shares of data warehouse specialist Snowflake (SNOW +3.51%) have had a disappointing start to 2026. As of this writing, the growth stock is down about 23% year to date.
This steep decline, however, comes as the underlying business is showing impressive momentum -- at least on its top line. Additionally, the company's revenue growth rate is accelerating, benefiting from an artificial intelligence (AI) tailwind.
For investors who have been watching from the sidelines, a pullback like this in a fast-growing business can look like a tempting opportunity. Is the stock's recent weakness an opportunity?
Image source: Getty Images.
AI is fueling a top-line acceleration
Snowflake, which records revenue based on platform usage, saw its fiscal fourth-quarter product revenue rise 30% year over year to $1.23 billion -- an acceleration from 29% growth in the prior quarter.
One driver for the recent acceleration is AI. Customers are increasingly relying on Snowflake's data cloud to organize and process the massive amounts of data required to train and run AI models. In fact, management noted during the company's earnings call that more than 9,100 accounts are already using the company's AI offerings.
"A year ago, we were talking about the promise of AI," explained Snowflake CEO Sridhar Ramaswamy during the company's fiscal fourth-quarter earnings call. "Today, the promise is real, and Snowflake sits at the center of the enterprise AI revolution."
This surging demand is clearly evident in the company's backlog. Snowflake's remaining performance obligations (RPO), or the contracted revenue that has not yet been recognized, totaled $9.77 billion in fiscal Q4. This represents 42% year-over-year growth -- marking the second consecutive quarter of accelerating RPO growth. And the company's net revenue retention rate remained at a very healthy 125%, indicating that existing customers are steadily increasing their spending on the platform.
Where the story gets complicated
With accelerating revenue and a booming backlog, the bull case for Snowflake is easy to understand. But, unfortunately, the bear case is just as easy to understand.
The first issue for investors to consider is profitability. Despite its impressive top-line momentum, Snowflake remains unprofitable on a generally accepted accounting principles (GAAP) basis. The company reported a GAAP operating loss of $318.2 million in fiscal Q4. While its non-GAAP (adjusted) operating margin reached a much healthier 11%, the heavy stock-based compensation, which weighs on its unadjusted bottom line, remains a high cost for shareholders.
But the biggest problem for investors is the price tag.
Even after falling 23% this year, Snowflake's valuation remains sky-high. With a market capitalization of more than $57 billion as of this writing, the market is already pricing in years of rapid revenue growth and a swing to significant GAAP profitability. While investors can't rule out the possibility that Snowflake will live up to such high expectations, the risks should be carefully considered. For instance, if competition heats up and Snowflake's growth slows while marketing expenses are forced to rise to stay competitive, substantial profits could be delayed even further.
NYSE: SNOW
Key Data Points
Time to buy?
Clearly, Snowflake's platform is resonating with its customers. And its position in the AI ecosystem is incredibly valuable. Additionally, management's guidance for 27% product revenue growth in fiscal 2027 shows that the company has plenty of runway to continue expanding its business.
But the bull case seems largely priced in, with little regard for the risks.
That said, I don't think shares are a buy. Still, given the company's strong performance, I probably wouldn't sell the stock at this price if I already owned it.
