Snowflake Surging to All-Time Highs

In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors Jon Quast, Matt Frankel, and Lou Whiteman discuss:

• Snowflake's hot quarter.
• Some things to watch with Snowflake for now.
• Increasing opposition to the data center build out.
• Whether the current slowdown continues and what it means for top data center stocks
• Mailbag: My stock is down. Should I buy more?

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A full transcript is below.

This podcast was recorded on Sept. 3, 2026.

Jon Quast: Is the data center investing trend in trouble? Motley Fool Hidden Gems Investing starts now. Welcome to Motley Fool Hidden Gems Investing. I'm your host Jon Quast, and I'm joined today by Fool contributors Matt Frankel and Lou Whiteman. Today, we're going to talk about the data center build out trend, and I promise that we're not going to regurgitate past talking points. There's going to be some new stuff here.

But first, we wanted to talk about Snowflake. Snowflake has been a very popular stock among investors since it went public a number of years ago. It is over a $100 billion company, and today it is up more than 20%. It is hitting 52-week highs, and it is approaching all-time highs. Matt, we're going to let you talk to us here about what is happening with Snowflake.

Matt Frankel: This is one I have to think that Berkshire Hathaway sold too early. They beat expectations pretty handily. Revenue growth was expected at 35%. It ended up 37%. They beat on the bottom line for the fifth consecutive quarter, massive guidance raise. They posted a net revenue retention rate of 126%, which means that its customers are spending more and more as time goes on. That's a pretty remarkable rate, so not much to dislike about this quarter.

Lou Whiteman: Jon, do we have to call Warren Buffett in and give him a lecture on day trading? Because what's going on here, Warren? Why'd you get out? This has been just a weird stock, though, hasn't it? Even for tech stocks, it was a darling IPO in part because Berkshire got in before the IPO. It was the tech company that Warren Buffett endorsed. It fell and did nothing for about three years, and now it's great again. But then again, it's also barely back to its all-time highs from 2021. Just a really interesting company, but a heck of a quarter, not just a beaten raise, but a really aggressive raise, 36% revenue growth forecasted in fiscal 2027. That's from a pretty good base to begin with. Definitely, as Ron Gross would say, firing on all cylinders.

Jon Quast: Both of you are referencing why it has had such a weird publicly traded company arc. Berkshire Hathaway, Warren Buffett, very much known for being tech-averse and getting in on this company that a lot of people didn't understand prior to the IPO, and it was seen as a major stamp of approval here. If the tech-averse investors are getting in on this, shouldn't I get in on this as well? Massive run-up prior to the IPO, and I want to circle back to something that Lou just said. It's been a loser for many investors, depending on when you got in, this has been a loser stock. But you look at what it's done since going public. It routinely beats its revenue guidance. It routinely raises expectations. But it hasn't been a good-performing stock for many investors. What is different this time? Because we've beat and raised in the past. We're beating and raising now, and it's being celebrated. But what is really different here, Matt?

Matt Frankel: The price jump wasn't just because they beat expectations. Like you said, Snowflake regularly beats expectations. Five consecutive quarters are better than expected bottom line. It's because of the acceleration, really. Over the past three quarters, their top line growth has gone from 30% to 34% to 37%, all ahead of expectations. Q3 guidance, it implies even more acceleration going forward. Not only that, but margins improved while the growth accelerated faster than expected, which is really impressive. A lot of companies have this acceleration running now, but they're paying up for it. Adjusted operating margin came in at a little over 15%. It was 11% a year ago. Not only is the growth accelerating, but so is the profitability. That's really why you're seeing the stock up more than 20% today.

Jon Quast: I wish I could jump into a DeLorean and invest just about two years ago, because the stock has roughly quadrupled since its 2024 lows. Really, boys and girls, if you want to find a stock that can perform so well over a short time period, find a stock that is about to start accelerating revenue growth, one that's not doing it right now, but revenue growth is about to really pick up. That can often be something that is going to perform well. Lou, let's talk about this acceleration a little bit. It's not just that it's accelerating. Why is all of a sudden the gas pedal hitting the floor for Snowflake?

Lou Whiteman: Stop me if you heard this before, but AI. To be fair, you're right. There's been a lot of beat-and-raises where it didn't do much. But last quarter, we saw a very similar beat-and-raise, and I think even bigger jump versus the 20% today. We're slowly catching on here, but AI models thrive on data. That is just foundation for all of these. Snowflake's core purpose is to make data accessible, to organize data, and to make data available to humans, but also AIs. This is a marriage made in heaven, I think. They took a lot of flack a few years ago, and one of the reasons the stock went down was they switched from just a license model to a consumption model, so you only pay for what you use. At the time, that drove revenue in the wrong direction because instead of just paying a massive huge flat fee, companies could cherry-pick and only use it when they had to. But all of a sudden, AI workloads are coming in there, and the consumption-based model is really helping them. Whether or not it's sustainable or temporary, we'll see, probably somewhere in the middle. But right now, paying for what you use in an environment where you desperately need to get data into your models is a very good model for Snowflake.

Matt Frankel: I would call out that management specifically said that AI workloads drove roughly half of that growth acceleration we were talking about. It is a major tailwind right now.

Jon Quast: Of course, Snowflake's CoCo product. This is the coding agent, and basically you are able to incorporate your own data to write code for your own applications. That could be really powerful in continuing that acceleration. But we don't want to be just cheerleaders here on the sideline. We do want to talk about some things that maybe investors should take note of, not necessarily absolute the sky is falling, but some things to watch that could be concerns down the road. We'll let Matt go first here.

Matt Frankel: There are a few things that I noticed. One that we talked about before we recorded their RPO, which is essentially their backlog; It grew a little bit slower than revenue, but a lot of that seasonality. Snowflake pointed out that their renewals and things like that tend to happen in the fourth quarter. I'm not paying too much attention to that. Valuation is obviously a concern. I've learned a lesson many times as I know you have that valuation always matters a little bit. Snowflake right now trades for about 20 times forward sales, about 80 times free cash flow. That's a lot, even with that growth. Stock-based compensation. There's a reason we're quoting things like adjusted EPS when we're talking about all this because they are giving out a lot of stock to employees. Their stock-based compensation is almost 30% of revenue. That's a lot. That's down to their credit from 39% a year ago. But their stock was diluted by more than 4% over the past year, and that's even with some buybacks intended to offset it. That's one of my big concerns.

Lou Whiteman: I'm glad you said that because look, it's part of life. We're used to it, but I am so frustrated by all this, the way it's done. I think that's definitely that valuation. The other thing I'd mention is they did warn of some gross margin depression up ahead. The guidance was down 100 basis points, but look, the guidance was still for 74%. Those are decent margins. I don't want to play chicken little. The bigger question, and this is just the bigger picture question, we've heard about tokenmaxxing. We''re in the AI exploring mode, and we seem to be moving towards an AI efficiency mode. There was a question on the call about it. Is the customer just being irrational now, or can this continue? I think it's a decent question to ask. Is there a time that maybe the AI volumes get smarter instead of bigger and that consumption-based model comes back down to earth? It's still a good business if so, but back to Matt's point of valuation. There's a lot of the status quo continuing and going higher from here, baked into that valuation, so any little flinch could cause trouble.

Jon Quast: After the break, we're going to be diving into data centers. You're listening to Motley Fool Hidden Gems Investing.

Welcome back to Motley Fool Hidden Gems Investing. We want to talk about data centers here. In July, New York became the first state to put a moratorium on new data centers, and specifically for 50 megawatts and bigger. If you're on a certain side of the political aisle, the political spectrum, you might look at a state such as New York putting a moratorium on it and saying that's what you'd expect with New York. But Texas now coming out and also putting a pause button on approvals because they're concerned about power, and there's pushback from communities. Here we have somebody on the red side of the spectrum and the blue side, and they're both hitting very big states, prominent states, and they're both hitting the pause button here on new data centers. The president, of course, has stated his opinion that if you oppose AI progress, you're going to be backwards and poor.

But we've been talking about this trend a lot because there's literally trillions of dollars pouring into the economy to build this out. That has resulted in many stock winners for us. This data center boom, now there's pushbacks, and questions about it, so we wanted to talk about that. What's going on, and why is there pushback here, Matt?

Matt Frankel: I'm not surprised about this statistic. 70% of Americans don't want data centers built near their homes. No, I wouldn't want to look out my window. I see some nice palm trees, things like that. I wouldn't want to see a giant data center there. I'm not shocked at that statistic. I was shocked to find out that there are 833 separate organizations that are specifically created in the United States to be opposed to data center construction right now. Opposition groups, these 833 groups in the first half of the year, successfully blocked or delayed two out of every three data center projects they targeted. That surprised me, and that's something that investors should pay attention to.

Jon Quast: Matt, give us an example here of a legitimate concern when it comes to these data centers.

Matt Frankel: You mentioned this is not a political issue. Regardless of what side of the political spectrum you're on, nobody likes higher power bills. Electric bills in the United States have risen about 5% on average over the past year, much higher in some areas, specifically the areas near data centers. The massive power consumption by data centers is a big reason why, and they're expected to have a further 6% impact over the next year. Even most industry advocates, like Greg Abel, Berkshire Hathaway's CEO, who in Berkshire Hathaway Energy is a net beneficiary of this, went on TV yesterday and said that the hyperscalers should absorb the power bills that these are causing. That is a big roadblock and a legitimate concern.

Lou Whiteman: It's a weird moment now because I don't want to make light of the concerns. I think the concerns are serious, and they need to be addressed, but I also think these moratoriums are temporary. There's just a massive uneven power dynamic that what we're seeing right now between these big tech companies with their teams and small-town jurisdictions, where a lot of the town council maybe part-time workers who have day jobs. That's going on. That's what's causing this moratorium, and I do think it's probably temporary.

Jon Quast: Basically, you're going up against a trillion-dollar company, and you're just this little tiny municipality who pays for the power. You might have a hard time negotiating that. But do you think, Lou, that we get past this pause?

Lou Whiteman: I do.

Jon Quast: You've already alluded to it, get things coming again?

Lou Whiteman: Here's the thing. I think the power dynamics should work the other way. They are desperate to get these things moving. Look at what Meta, what Alphabet, what all these companies are spending to just try to go as quickly as they can. It feels like the towns, the municipalities, and states, they have more leverage than they realize. I do think this problem solves itself by saying, "No, supply your own power," or even "Contribute to our grid and bring power." The big thing now is, though, with these moratoriums, I think New York talked about it, Texas talked about it. Let's get these negotiated on the state level, where it's a fight. You have the state lawyers; you can't play towns against each other. We're not going to say what Shelbyville offered us, but it's really good, so doesn't Springfield want to get a good? That's the dynamics that have led to a lot of this anger and a lot of this craziness. At a state level organized where everything is a little more transparent, and you have just professionals negotiating with professionals who do this for a living. I think that does end these moratoriums and get things going. I do think the power dynamics might look a lot better for communities once we get.

Jon Quast: The tide of public opinion has definitely turned against these things right now. Matt, are there some positives that we should consider when it comes to the data centers?

Matt Frankel: You mentioned the president's backwards and poor quote, which, to unpack that more, he actually did mention some very legitimate positives. Job creation is one. Meta is building a massive data center in Louisiana right now. At peak construction, it's estimated to bring 7,500 construction jobs, which are temporary, but this is going to be an eight-year project, as well as about 1,000 permanent jobs to the area. It does bring in jobs. It is national security. Because earlier you mentioned China is laughing at us because this will help them in the AI race. It's not totally wrong. Maintaining a tech lead is a big part of national security. We have a whole national security portfolio at The Fool, and a lot of the stocks are focused on maintaining our tech lead. Property taxes are another thing. I mentioned that Meta data center. It is bringing in a roughly $30 million property tax bill to a parish in Louisiana, whose tax receipts last year were $22 million total. That's a big jump up in property taxes. There are some legitimate positives for these. He mentioned that these hyperscalers just need better PR to tell people why they should want this near them. There are some legitimate reasons.

Jon Quast: Lou, here talking about he believes that the pause, the moratorium when it comes to data centers is temporary. Let's assume that Lou is right here that the data center trend gets back on track. What about the stocks? Because as you mentioned, there are many stocks in the Hidden Gems universe that are tied to this trend, and many of them are down right now. I look at Marvell down more than 30%. I look at Celestica down almost 40%. Sterling Infrastructure, one of the better performers among our stocks that we follow here, it's down more than 50% from its high. Do these stocks get back on track?

Lou Whiteman: It's complicated. It's going to solve some of the problems, but it might not solve all the problems for these stocks. Depending on the company, though, there are serious capacity constraints at work here, too. It doesn't matter what your order book looks like if you only have so many employees or you only have so much manufacturing capacity, or there's only so much equipment available to be installed, even if you have more demand. I both believe database construction will recover, and I do think that there's going to be some improvements for some of these companies. But I also think that the majority of the gains, there's the blockbuster gains for these suppliers for these picks and shovels. They may be behind us. It's not a stir of gains now. It's about just extending an elevated operating environment.

Matt Frankel: I'd push back on that a little bit. Lou mentioned manufacturing capacity, employee capacity as constraints. There are others, too. There's power capacity, which we've talked about. That's why electric bills are going up. There's chip shortages, which you need chips to fill these data centers. You need capital. Nvidia just projected $1.3 trillion of hyperscale or capex next year. That's got to come from somewhere, and eventually the numbers get too big, and we're going to have some capital constraints. We're seeing a lot of different constraints, I believe, priced into some of the stocks you mentioned. We have to worry about getting past zoning boards as well as another constraint. There are a lot of constraints in the industry. I think, yes, the explosive gains, I don't think we're going to see momentum, for example, 10X again from here because of this. I think some of the big gains are behind us when it comes to some of these AI infrastructure companies. But I don't think that we've seen them hit their all-time highs yet, for example.

Jon Quast: One of our listeners is down big on an AI infrastructure stock, and after the break, we're going to take a question from them from our mailbag. You're listening to Motley Fool Hidden Gems Investing.

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Jon Quast: Welcome back to Motley Fool Hidden Gems Investing. In a quick note. We want to make you part of the conversation, so you can send in questions to podcast@fool.com for any of our contributors here. We would love to take it if it's Foolish, if it's short enough to read on air, and if you keep in mind that we don't give personalized investing advice. If you can check those boxes, then we'd love for you to email us at podcast@fool.com.

Today's question comes from a listener named Ben. Ben says that they heavily invested in a small-cap AI infrastructure company and are currently sitting on a substantial unrealized loss. In other words, bought the stock, and it went down pretty big. Despite that, I strongly believe the thesis and would invest the same amount at today's price. My bold case is that it could potentially return 10 to 15X by 2030. Alternatively, there's a much larger, more established company in the same ecosystem that I view as a relatively safer 2-3X over the same time frame. How should investors think about weighting that asymmetric upside against the greater certainty of the established company, especially when already sitting on a large loss.

Guys, if I try to just think through this question, what's really being asked, this is almost more a question about portfolio construction. You have a riskier, higher upside, small-cap company already sitting on the unrealized loss, a safer, less big upside from this other larger stock. How do we weigh that?

Lou Whiteman: Not to pick on Ben because his email doesn't imply that this is hitting him, but I think it is. The first thing I think of this is the sunk-cost fallacy, and I think it's something we should all think about with these things. Sunk-cost fallacy is our habit of staying committed to something because we've sunk resources into it, even if quitting is smarter. In this case, we have invested all of this. We're down big, so it's harder to cut our losses. We should always make decisions based on our best judgment right now going forward. But when you're holding a large unrealized loss, there's a huge urge I just got to get back to even. I do think that plays into here. As you're looking at this, it's hard to say apples to apples today. But to that question, how should investors think about slow and steady versus high risk, high reward? It's a boring answer. I really do think it boils down to the individual, their risk tolerance, their goals, things like that. My answer for me is I'd probably do both. I'd probably say put 60% of the funds in an established company and the rest into a more speculative, so I get the steady returns plus potential upside, but I really do think it depends on the circumstances and the individual and what Tembe Denton-Hurst you to sleep at night.

Jon Quast: Just for our listeners, I want to point out that Ben did not share the names of the two companies here. Lou is not making a pick on either of those, just generally saying, "Hey, this is how I would think about it if I was thinking through it like you are." But, Matt, what do you have to add here?

Matt Frankel: On the sunk-cost fallacy thing, Ben passed the test on the main question you have to ask yourself. He asked himself if he would buy more at today's price, and he specifically said that answer is yes, I would invest more at today's price. That's the big thing that Lou was talking about. The unrealized loss that you have is irrelevant to any forward-looking investment decisions, whether that is to exit or to buy more. The market doesn't know or care what your cost basis is. That sounds silly to say, but many investors subconsciously invest like it does. I mostly agree with Lou about what he said with the steady player versus the high-risk candidate. I'd point out that he said, I see a 2X to 3X return potential by 2030 for even the slow and steady one. That translates to 17%-29% annualized returns through 2030. That would still almost certainly be a market beater. Slow and steady, in this case, doesn't mean boring. It means that you see it has potential to beat the market still. Don't be afraid to put the majority into what you consider the safer play. If you're directionally right on the trend and buy it at a reasonable valuation, the return potential from the safer of the two could still be pretty enormous.

Jon Quast: As you say, beating the market is hard to do, and if there's an option with a safe stock, that might not be a bad idea. Thanks to both of you for weighing in here.

As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against. Don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks to our producer Bart Shannon behind the glass and the rest of The Motley Fool team. For Matt, Lou, and myself, thank you so much for listening to our show today, and we will see you again next time.

Jon Quast has no position in any of the stocks mentioned. Matt Frankel, CFP® has positions in Berkshire Hathaway. Rachel Warren has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Berkshire Hathaway, Celestica, Marvell Technology, Meta Platforms, Nvidia, Snowflake, and Sterling Infrastructure. The Motley Fool has a disclosure policy.