Snowflake does not usually give the market an easy read. Then it posted the quarter it did on September 2, and the answer became harder to ignore.
Product revenue came in at $1.49 billion for the fiscal second quarter, up 37% year over year, and the company beat EPS estimates by about 38%. Shares surged about 22% in after-hours trading. The kicker: this was Snowflake’s third consecutive quarter of accelerating growth, after exiting fiscal 2026 at 29% product revenue growth.
The Business
Snowflake operates a cloud-based data platform. Enterprises store, process, and now increasingly run AI workloads on top of it. The pitch was always that data would compound over time; what changed in 2026 is that AI made that data valuable enough to spend on immediately.
CEO Sridhar Ramaswamy pointed to two AI products doing most of the heavy lifting: CoCo, an AI coding agent, and CoWork, an enterprise intelligence agent. CoCo now serves more than 9,100 customer accounts, an increase of more than 2,000 during the quarter. AI adoption pulls customers deeper into the platform, which drives more consumption, which widens the data moat.
Why Wall Street Is Paying Attention
Snowflake raised its full-year product revenue outlook to $6.07 billion, up from $5.84 billion guided in May. Third-quarter product revenue guidance of $1.588 to $1.593 billion implies 37% to 38% year-over-year growth. The company expects a non-GAAP operating margin of 15.5% in the third quarter and 14.5% for the full year, up from prior guidance of 13.5%.
Jefferies hiked its price target to $430, flagging rapid adoption of the CoCo AI coding agent. The stock’s year-to-date performance has reached about 39%. The S&P 500 is up about 12% for the year.
What’s Driving the Opportunity
The clearest catalyst is the AI consumption model. Unlike subscription software, Snowflake charges based on usage, which means accelerating AI adoption translates directly into revenue growth without requiring new customers. On a non-GAAP basis, operating income reached about $240 million, beating consensus estimates by roughly 27%, while adjusted EPS of $0.62 topped the $0.45 estimate by about 38%. Cash, cash equivalents, and investments stood at about $4.3 billion as of July 31.
The real debate is whether AI workload demand sustains 36% to 38% growth into 2027, or whether it moderates once the initial enterprise migration wave settles.
What Could Go Wrong
The valuation remains aggressive. Snowflake still runs at a GAAP net loss, and even with the margin improvement, the stock trades at a significant premium to software peers growing at half its rate. Competition from Databricks, which remains private and continues to expand its AI and data lakehouse offerings, is growing. If enterprise IT budgets tighten heading into 2027, Snowflake’s consumption model works in reverse just as fast as it accelerates.
The Bottom Line
Three straight quarters of acceleration, a full-year guide increase of 500 basis points, and margin expansion happening simultaneously are not coincidental. The risk is entirely priced into the multiple. The opportunity is that the flywheel is still gaining speed, and three quarters of acceleration data suggests the turn is structural rather than seasonal.
