Snowflake Provides A Sigh Of Relief But Only Thanks To Strong AI Product Demand

After the bell on Wednesday, Snowflake Inc SNOW missed first quarter profit expectations while revenue surpassed estimates thanks to strong AI product demand. However, to Wall Street’s delight, the cloud storage provided guided for second-quarter product revenue above Wall Street estimates and raised its expectations for the year, riding the AI hype wave. 

Fiscal First Quarter Highlights

For the quarter that ended on April 30th, Snowflake reported that revenue grew 33% YoY to $828.7 million, while product revenue alone rose 34% YoY to $789.6 million, both surpassing Wall Street estimates. Revenue retention rate was 128%, down from last year’s comparable quarter when it amounted to 151% and January quarter's 131%. 

Adjusted earnings per share dropped 6% YoY to 14 cents, which was below analyst estimates.

A boosted outlook still implies a margin deceleration. 

To the delight of Wall Street, Snowflake lifted its product revenue guidance for fiscal 2025. For the year that runs from February 1, 2024 through January 31, 2025, Snowflake guided for product revenue of $3.3 billion, lifting its prior forecast of $3.25 billion.  However, Snowflake shales its full year operating income outlook, as non-GAAP operating margins are now expected to be 3%, down from previously guided 6% and actual last year’s 8%.

For the second quarter, product revenue that makes the most of sales is expected in the range from $805 million to $810 million surpassing LSEG’s average estimate of $785 million.

More collaborations on the horizon, Nvidia included.

On Wednesday, Snowflake CEO Sridhar Ramaswamy said that Snowflake would be collaborating further with AI chip giant Nvidia NVDA. In an interview on CNBC, Ramaswamy noted that Snowflake and Nvidia have already collaborated on several fronts, with many more to come. Back in April, Snowflake and Nvidia announced the expansion of their partnership to empower enterprises with an AI platform. Together, Snowflake and Nvidia will combine the full-stack NVIDIA accelerated platform with the trusted data foundation and secure AI of Snowflake’s Data Cloud.

While stating that the demand for its Cortex AI platform and Iceberg tables is already strong, Ramaswamy also added that Snowflake would be discussing AI and new products at its Data Cloud Summit conference next month. Back in April, Snowflake launched Snowflake Arctic, a large language model that draws from big amounts of text to generate responses to queries. Snowflake Arctic is optimized for complex workloads of enterprises.

The data cloud analytics company also announced its plans to acquire technology assets and hire 35 employees froman AI observability platform. TruEra sells software that enables developers to evaluate and monitor apps that use large language models and other AI tools.

All in all, Snowflake showed its core business is very strong but while revenue growth topped expectations, updated full-year guidance shows expected margins are still moving in the wrong direction. But, slightly higher product growth from previously expected 22% to 24% YoY does indicate Snowflake is, at the very least, starting to somewhat stabilize after a rough quarter. 

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