Snowflake 1Q26 Preview: Healthy demand, but near-term valuation re-rating constrained by a tough Q2 base

Overview

This report is Morgan Stanley's company research ahead of Snowflake Inc.'s 1Q26 earnings release. The core view is that the demand environment remains healthy, improving channel checks support a slight 1Q product revenue beat, and full-year product revenue growth guidance could be raised to around 27.5%; however, because Q2 faces a difficult year-over-year base, the near-term valuation rerating path is not smooth.

Core views

Morgan Stanley maintains Overweight, believing Snowflake still has a path to sustain about 30% product revenue growth in FY27, supported by solid core data warehousing and cloud analytics modernization demand, ongoing data estate consolidation, expansion of the data engineering mix, and the full market rollout of Snowflake Intelligence and Cortex Code. That said, the report also stresses that the 1Q setup is tricky: even if a 1Q beat materializes, management may only flow the outperformance through to the full year rather than materially lifting near-term quarterly expectations, limiting the catalyst for a short-term move to the US$245 target price.

Analysis framework

The report primarily evaluates Snowflake's earnings outlook and risk/reward by combining channel checks, comparisons between company guidance and consensus expectations, product revenue growth decomposition, peer stock performance, and EV/FCF growth-adjusted valuation. The valuation framework uses base, bull, and bear scenarios, and discounts CY30 revenue, operating margin, FCF, and EV/FCF multiples back to the current target price.

Methodology notes

• earnings_previewchannel_checks_vs_guidance_consensus

  Channel checks versus guidance/consensus comparison

  Use partner feedback to gauge demand strength, then compare expected product revenue with the midpoint of management guidance and market consensus to estimate the 1Q beat and Q2 guidance risk.

• Valuation methodsrisk_reward_scenario_analysis

  Risk/reward scenario analysis

  The report lays out bull, base, and bear scenarios corresponding to US$415, US$245, and US$112 risk/reward prices, and supports the target price with CY30 revenue, FCF, FCF multiples, and discount rates.

• Valuation methodsev_fcf_growth_adjusted

  Growth-adjusted EV/FCF

  The report notes that Snowflake screens at 1.35x EV/CY27 FCF growth-adjusted, which is not expensive versus large-cap software peers at about 1.32x, but near-term rerating remains constrained by the estimate setup.

• source_frameworkMorgan Stanley ModelWare

  Morgan Stanley internal forecasting framework

  Unless otherwise noted, report metrics are based on the Morgan Stanley ModelWare framework; consensus data are from Refinitiv Estimates.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Snowflake Inc. (SNOW.US)

  Core coverage name

  Strengths

  Healthy demand environment, improving channel feedback, and positive drivers across core data warehousing, cloud analytics modernization, data estate consolidation, data engineering, and the AI product suite.

  Weaknesses

  A difficult Q2 y/y comparison, and some AI workloads are still early-stage or in pilot, while new customers may prefer standalone AI projects before broader Snowflake deployments.

  Comparison

  Over the past month, Snowflake is up about 9%, lagging MongoDB's ~28% and Nutanix's ~21% gains, and also trailing the broader software enthusiasm sparked by strong Datadog and JFrog results.

  Risks

  If Q2 guidance misses expectations, AI monetization is slower than expected, or Databricks and other competitors continue to pressure ML infrastructure and Lakehouse use cases, valuation rerating could be delayed.

• Datadog Inc. (DDOG.US)

  Peer comparison

  Strengths

  The report highlights Datadog's standout performance, which has helped lift sentiment across software peers.

  Weaknesses

  Not a core coverage name in this report, and no fundamental analysis is provided.

  Comparison

  Used as a strong-performing peer to contrast Snowflake's relatively lagging stock performance over the past month.

  Risks

  Not separately highlighted in the report.

• MongoDB Inc. (MDB.US)

  Peer comparison

  Strengths

  The stock is up about 28% over the past month, helped by accelerating public cloud growth.

  Weaknesses

  Not a core coverage name in this report.

  Comparison

  Snowflake is up about 9% over the same period, clearly lagging MongoDB.

  Risks

  Not separately highlighted in the report.

• Nutanix Inc. (NTNX.US)

  Peer comparison

  Strengths

  The stock is up about 21% over the past month, helped by accelerating public cloud growth.

  Weaknesses

  Not a core coverage name in this report.

  Comparison

  Snowflake's performance over the same period lags Nutanix.

  Risks

  Not separately highlighted in the report.

• Databricks

  Primary competitive reference

  Strengths

  It remains a key competitive reference in ML infrastructure, Lakehouse, and data engineering workloads.

  Weaknesses

  A private company, so no financial valuation is provided in the report.

  Comparison

  Snowflake's feedback on Snowpark and dynamic tables is improving, but Databricks remains an important competitor in these use cases.

  Risks

  Competition could affect Snowflake's share, pricing, and growth in data engineering and AI/ML workloads.

Key data

• RatingOverweightMorgan Stanley maintains an Overweight view.
• Target PriceUS$245.00The report maintains a US$245 target price.
• 1Q product revenue beatAbout 2.5% / about US$32 millionExpected beat versus the midpoint of management guidance.
• 1Q product revenue y/y growthAbout 30%Keeps growth at roughly the Q4 level.
• 1Q upside versus consensusAbout 2.2% / about US$28 millionConsensus implies about 27.2% y/y growth.
• Q2 product revenue guidance assumptionAbout 6% QoQ / about 26% YoYThe report expects Q2 guidance to be broadly in line with consensus.
• Full-year product revenue growth outlookAbout 27.5%The report expects the 1Q upside to flow through to the full year, above the current ~26.5%.
• Base case CY30 revenueAbout US$13.4BImplying roughly 24% revenue CAGR from CY24 to CY30.
• Base case CY30 FCFAbout US$3.8BImplying a CY30 FCF margin of about 28.5%.
• Bull/base/bear priceUS$415 / US$245 / US$112Risk/reward scenario prices.

Impact & implications

For investors, the message is cautiously positive rather than aggressive: fundamental channel checks and feedback on AI-related products are improving, supporting confidence in Snowflake's medium-term growth and FCF expansion; however, whether the stock can re-rate quickly after 1Q depends on whether management can ease market concerns about the tough Q2 compare and the sustainability of FY27 growth.

Risks

• The difficult Q2 product revenue base could limit management's ability to guide materially above consensus in the near term.
• If the 1Q beat only flows through to the full year without lifting forward quarterly expectations, the stock's near-term re-rating may be limited.
• Databricks remains a major competitor in ML infrastructure, Lakehouse, and data engineering use cases.
• Although feedback on AI products is positive, some demand is still early-stage or in pilot, creating uncertainty around monetization timing.
• New customers may first prioritize standalone AI projects before deciding whether to expand Snowflake deployments.
• Public cloud providers and competitors could pressure growth, pricing, and margins.
• Expansion into adjacent data management or OLTP use cases may prove more difficult than expected.

What to watch

• Whether actual 1Q26 product revenue reaches about 30% y/y growth and comes in about 2.5% above the midpoint of guidance.
• Whether Q2 product revenue guidance stays around 6% q/q and about 26% y/y growth.
• Whether full-year product revenue growth guidance is raised from about 26.5% to closer to 27.5%.
• Whether management strengthens its commentary on the path to about 30% product revenue growth in FY27.
• Customer adoption and paid conversion for Cortex, Cortex Code, Cortex Analyst / Search, and Snowflake Intelligence.
• Competitive progress for Snowpark and dynamic tables in data engineering workloads.
• Changes in growth and valuation discounts versus Databricks, public cloud vendors, and large software peers.