Prediction: 1 Growth Stock Set to Bounce Next Year

Shares of Snowflake (NYSE: SNOW) have gained nearly 60% so far in 2025. However, the enterprise data player is still trading almost 39% below its peak in November 2021.

Snowflake has gradually evolved from a data warehousing company to an artificial intelligence (AI)-powered data platform. With increasingly higher machine learning and AI workloads being shifted to the company's AI data cloud, Snowflake is well-positioned to become a vital layer of the AI ecosystem.

Here's why this growth stock may be poised to bounce in 2026.

Image source: Getty Images.

Turnaround story

Snowflake's revenue model involves billing customers based on platform usage. While this business model aligns the interests of the company with those of clients, it can also lead to higher revenue volatility and lumpy revenue. In an uncertain economic environment, customers optimize usage and delay workload migrations, resulting in shorter contract durations.

This temporary demand slowdown, coupled with weaker-than-expected guidance for the current fiscal year and news of a CEO transition, also harmed Snowflake's share prices in 2024. Investor sentiment further deteriorated after telecommunications giant AT&T disclosed a data breach related to customer call logs from Snowflake's cloud data platform.

However, recent numbers show things taking a turn for the better. In the second quarter of fiscal 2026 (ended July 31, 2025), Snowflake's revenue soared 32% year over year to $1.1 billion, while remaining performance obligations (RPO, a measure of contracted backlog) rose 33% to $6.9 billion.

While not yet profitable on a generally accepted accounting principles (GAAP) basis, the company is showing a gradual decline in losses. Its non-GAAP (adjusted) operating margin improved six percentage points year over year to 11%. Management is also guiding for revenue of $4.39 billion in fiscal 2026, up 27% on a year-over-year basis, and an adjusted free cash flow margin of 25%.

AI Data Cloud momentum

Snowflake's AI Data Cloud is a unified platform that enables organisations to store, analyse, and use AI capabilities on their proprietary data without moving it into other systems. AI Data Cloud is already used by over 12,000 customers, which includes hyperscalers and large technology enterprises.

The company added 533 customers in the second quarter, including 15 Global 2000 companies. Snowflake also witnessed increased momentum in its high-value client base. The company added 50 customers, contributing over $1 million in the last twelve months, and now has 654 customers in this cohort.

Innovations

Snowflake has also introduced new features, which further help it manage the clients' data lifecycle. The company's new agentic AI platform, Snowflake Intelligence, is now in public preview. It allows customers to directly interact with their enterprise data using natural language queries and derive actionable insights.

The company's recently launched Cortex AI SQL will also enable clients to leverage large language model capabilities inside SQL databases, thereby generating insights without moving data between systems. Its Gen2 warehouses are also delivering 2x faster performance with improved efficiency. This is translating into accelerated and simplified data management for clients, without increasing costs.

Snowflake Postgres, developed through Crunchy Data's acquisition, enables developers to create AI applications that support Online Transaction Processing (OLTP) on the open-source, enterprise-grade Postgres relational database within the AI Data Cloud.

Snowflake OpenFlow, built on technologies obtained in the Datavolo acquisition, is helping the company target the $17 billion data integration market. It enables clients to bring in structured and unstructured enterprise data in batch or streaming mode, in a seamless fashion. Snowflake OpenFlow also supports change data capture, or tracking and recording changes made in Oracle systems.

Finally, Snowpark Connect for Apache Spark has made it easier for enterprises to migrate Spark workloads to Snowflake's system.

All these AI-powered innovations are driving new customer wins. In the second quarter, management highlighted that almost 50% of the new logo wins were driven by AI use cases, while 25% of the deployed use cases involve AI. Around 6,100 accounts are using Snowflake's AI every week. The company also reported 40% of customers sharing data on its platform, which is driving strong network effects. All these trends can boost consumption-based revenue and create a sticky customer base.

Valuation

Snowflake's shares currently trade at 20.4 times sales, which may seem rich for a loss-making company. However, the valuation can be justified considering the mission-critical role AI Data Cloud can play in the global AI infrastructure. This is not just speculation, but has already started materializing.

The company has entered into a partnership to integrate its AI Data Cloud with Palantir Technology's Foundry and Artificial Intelligence Platform (AIP). This deal is enabling joint customers like Eaton to enjoy seamless data interoperability, which will accelerate enterprise AI development. Additionally, it can also give Snowflake access to Palantir's broad base of commercial and government clients.

Analysts expect Snowflake's revenue to grow 27.1% year over year to $4.6 billion in fiscal 2026 (ending Jan. 31, 2026) and 23.8% to $5.7 billion in fiscal 2027. We can assume the price-to-sales multiple will remain close to its current level, considering that it is significantly lower than its five-year average of 34.1 times.

Wedbush analyst Daniel Ives also considers Snowflake to be in the "early innings of AI demand". Hence, the probability of significant valuation compression remains low in the case of continued strong execution. Subsequently, the company's market capitalization can reach around $116.28 billion at the end of fiscal 2027. This translates into gains of nearly 38% or close to its November 2021 peak.

Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle, Palantir Technologies, and Snowflake. The Motley Fool has a disclosure policy.