Warehouse specialist shares Snowflake (NYSE: CHOICE) had a disappointing start to 2026. As of this writing, the growth stock is down about 23% year to date.
This sharp decline, however, comes as the underlying business is showing impressive momentum — at least on its top line. Additionally, the company’s revenue growth rate is increasing, benefiting from the Artificial Intelligence (AI) tailwind.
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For investors who have been watching from the sidelines, a setback like this in a fast-growing business can look like an attractive opportunity. Is the stock’s recent weakness an opportunity?
Snowflake, which records revenue based on platform usage, saw product revenue for its fiscal fourth quarter rise 30% year-over-year to $1.23 billion — an increase in growth from 29% in the previous quarter.
One driver of recent acceleration is AI. Customers increasingly rely on Snowflake’s data cloud to organize and process the large amounts of data needed to train and run AI models. In fact, executives noted during the company’s lead that more than 9,100 accounts are already using the company’s AI offerings.
“In the past, we’ve been talking about the promise of AI,” explained Snowflake CEO Sridhar Ramaswamy during the company’s fourth-quarter earnings call. “Today, the promise is real, and Snowflake sits at the center of the enterprise AI revolution.”
This growing demand is clearly reflected in the company’s backlog. Snowflake’s remaining operating obligations (RPO), or outstanding contract revenue, reached $9.77 billion in fiscal Q4. This represents 42% year-over-year growth — marking the second consecutive quarter of accelerated RPO growth. And the company’s net income retention rate remains at a healthy 125%, indicating that existing customers are steadily increasing their use of the platform.
With accelerating revenue and a growing backlog, the snowflake case is easy to understand. But, unfortunately, the bear’s guilt is easy to understand.
The first issue that investors should consider is profitability. Despite its impressive top-line momentum, Snowflake remains unprofitable on a generally accepted accounting principles (GAAP) basis. The company reported a GAAP operating loss of $318.2 million in fiscal Q4. While its non-GAAP (adjusted) operating margin came in at a very healthy 11%, heavy stock-based compensation, which has a significant unadjusted weight, remains a high cost to shareholders.
But the biggest problem for investors is the price.
Even after a 23% drop this year, Snowflake’s value remains high. With a market capitalization of more than $57 billion as of this writing, the market is already priced in for years of rapid revenue growth and a transition to greater GAAP profitability. While investors can’t rule out the possibility that Snowflake will live up to lofty expectations, the risks should be carefully considered. For example, if competition heats up and Snowflake’s growth slows while marketing costs are forced to rise to stay competitive, profitability may be further delayed.
Clearly, Snowflake’s platform is aligned with its customers. And its position in the AI ecosystem is incredibly important. Additionally, management’s guidance for product revenue growth of 27% in fiscal 2027 shows that the company has plenty of room to continue growing its business.
But the bullpen’s offense appears to have great value, regardless of the risk.
That said, I don’t think the shares are a buy. Still, given the company’s strong performance, I probably wouldn’t sell the stock at this price if I already owned it.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool ranks and recommends Snowflake. The Motley Fool has a policy of disclosure.
Down 23% This Year, Is It Finally Time to Buy Snowflake Stock? was first published by The Motley Fool
