Snowflake Shares Surge on Strong AI Growth. Is It Too Late to Buy the Stock?

Snowflake (NYSE: SNOW) shares skyrocketed after the company reported strong first-quarter results. The stock has struggled much of the year prior to its report; as such, even after its surge in price, it is up only about 14% year to date, as of this writing.

Let's take a closer look at Snowflake's Q1 results and prospects to see whether it's too late to buy the stock or if the momentum can continue.

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Revenue growth accelerates

While the market has sometimes viewed Snowflake as an artificial intelligence (AI) loser, the company continues to demonstrate that it is positioned to be a big AI winner. Its Snowflake Intelligence and Cortex Code coding agent continue to drive growth, with more than 13,600 accounts now using its AI solutions. This is also leading to more consumption on its core cloud-based data warehousing platform, which can help provide the clean, structured data needed for agentic AI. It also announced it was acquiring Natoma to improve governance and security for agentic AI workflows.

In Q1, Snowflake saw its year-over-year revenue growth accelerate to 33% to $13.9 billion, up from the 30% growth it saw in Q4 and 29% growth in Q3. Product revenue also rose by 33% to $1.33 billion. Adjusted earnings per share (EPS) surged 63% to $0.39 from $0.24 a year ago.

Its net revenue retention rate came in at a robust 126% over the past 12 months. A number above 100% shows that existing customer usage is rising, even after accounting for any customer churn.

Snowflake also continues to do a nice job of adding new customers, increasing its base by 38% year over year. It added eight customers spending more than $10 million, taking the total to 64.

Looking ahead, Snowflake upped its full-year forecast. It now expects product revenue of $5.84 billion, representing 31% growth, up from a prior outlook of $5.66 billion, or 27% growth. It expects adjusted operating margins of 13.5%, up from its previous 12.5% guidance.

For fiscal Q2, it projected product revenue of between $1.415 billion and $1.420 billion, equaling growth of about 30%. It's looking for adjusted operating margins of 12.5%.

Is it too late to buy Snowflake stock?

While its stock has been volatile amid the software-as-a-service (SaaS) sell-off, the company is doing very well operationally. It's demonstrating that it's a clear AI winner, and it should only benefit from the rise of agentic AI.

That said, the jump in stock price has pushed its valuation to a forward price-to-sales (P/S) multiple of 14 for this fiscal year, based on analyst estimates. That's not absurd given its growth, but SaaS multiples overall have come down. As such, I'm not chasing the stock after its huge rally.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Snowflake. The Motley Fool has a disclosure policy.