Snowflake's growth reaccelerates on core consumption and AI, but valuation keeps Bernstein at Market-Perform

Overview

Bernstein reviews a substantially better-than-expected 2Q27 for Snowflake. Core-platform consumption, new customer activity and rapidly adopted AI products drove another quarter of revenue acceleration and higher guidance, but the report remains cautious about valuation and whether Snowflake can sustain a differentiated AI platform against hyperscalers, AI labs, SaaS vendors and data-platform competitors.

Core views

Snowflake delivered a broad-based 2Q27 beat. Total revenue was USD 1.547 billion, up 35% year on year and 4.5% above consensus. Product revenue reached USD 1.492 billion, up 37% and about 5% above consensus, versus 34% growth in the prior quarter. This was the third consecutive quarter of product-revenue acceleration. Bernstein says the result exceeded already elevated expectations and reflects both faster consumption of the core platform as customers migrate workloads and a meaningful step-up in AI-related revenue. The report identifies three ways AI is accelerating revenue: it brings new workloads onto Snowflake, generates direct revenue from products such as CoCo for coding and CoWork for data analysis and actions, and encourages existing customers to consume more of the underlying data platform. CoCo became generally available on February 5, while CoWork launched in June 2026. Accounts using CoWork grew 11% quarter on quarter, and net account growth for CoCo was 28%, with CoCo reaching 9,100 accounts. Unlike the prior quarter, when CoCo was the largest reason for the forecast increase, AI revenue in 2Q27 was more broadly based. Customer and backlog indicators support continued FY27 growth, although they do not all move in parallel. Snowflake added 692 net new customers, 32% more than a year earlier, and revenue from new customers accelerated. NRR was unchanged sequentially at 126% and only one percentage point higher year on year, which would normally appear inconsistent with the sharp revenue acceleration. Management attributes this to recent customers that have not yet entered the trailing NRR calculation. Since customer-count growth itself has been relatively stable, Bernstein reasons that larger contract sizes and larger customers migrating data are also contributing. RPO grew 30% and cRPO accelerated to 40%; however, the report cautions that cRPO alone is not a clean growth indicator for a consumption-based business with substantial in-quarter volatility. Combined with stable-to-improving NRR and new-product traction, it nevertheless supports the outlook for the rest of FY27. Snowflake also signed a deal exceeding USD 400 million in 4Q26, the largest in its history. Profitability improved alongside revenue. The 2Q27 non-GAAP operating margin was 15.3%, four points higher year on year and above the 12.6% consensus, helped by revenue growth and disciplined hiring. GAAP operating margin improved to negative 17% as management focused on reducing stock-based compensation. Non-GAAP product gross margin was 74.7%, slightly below expectations, reflecting an important trade-off: current AI workloads have lower contribution margins even as they support faster growth. Diluted non-GAAP EPS was USD 0.62 versus USD 0.45 consensus. Guidance indicates that the acceleration should continue. For 3Q27, management guided product revenue to USD 1.588-1.593 billion, representing 37%-38% growth versus 29% consensus, and non-GAAP operating margin to 15.5% versus 14.2% consensus; guided share count is 382 million. FY27 product-revenue guidance increased to USD 6.070 billion and 36% growth from USD 5.840 billion and 31%. This implies year-on-year acceleration, which the report says has not occurred for more than five years. FY27 non-GAAP operating-margin guidance rose to 14.5% from 13.5%, while adjusted free-cash-flow margin remained 23%. Product gross-margin guidance fell to 74% from 75% because AI workloads currently carry lower contribution margins, and diluted share-count guidance increased to 380 million from 376 million. Bernstein's updated model forecasts total revenue of USD 6.391 billion in FY27 and USD 8.490 billion in FY28, compared with previous estimates of USD 6.228 billion and USD 7.927 billion. It forecasts adjusted EPS of USD 2.50 in FY27 and USD 4.10 in FY28, with non-GAAP operating margin rising from 15.8% to 20.5%. The report nevertheless views valuation as demanding: at the stated close, Snowflake traded at 16.6 times FY27 estimated sales and 122.1 times adjusted earnings, after gaining 39.4% year to date and 79.6% over six months. The strategic question is where enterprises will build and run AI as critical data moves to the cloud. Snowflake currently benefits because customers already hold or can access copies of data on its platform, including through zero-copy access, making it a natural place to develop AI applications. This positioning could remain attractive for workloads that are not tied to packaged systems of record and for internally developed applications. Over time, however, SaaS vendors and hyperscalers may improve their own agents and AI tools, causing workloads to move back toward the systems of record. For system-of-record data, enterprises must decide whether they are willing and able to copy information into Snowflake, run agents there, and write results back. Snowflake's push from data warehousing and databases toward a broader AI platform therefore expands both its opportunity and its competitive exposure. It now faces AI labs such as OpenAI and Anthropic; hyperscalers Amazon, Microsoft and Google; application vendors including Salesforce, ServiceNow and SAP; and data competitors such as Databricks. Data-federation offerings including Microsoft Fabric, Salesforce Data Cloud and SAP Business Data Cloud could reduce the need to maintain separate warehouse copies as critical on-premise data migrates to the cloud. The report believes the young market offers enough near-term growth for several providers, but expects a longer-term shakeout and questions why customers would choose Snowflake's AI rather than the capabilities of the cloud platforms on which Snowflake itself operates. Bernstein maintains Market-Perform with a positive bias. The price target rises from USD 250 to USD 377 after rolling the model forward and raising the target multiple from 11 times to 15 times. The valuation applies 15 times EV/sales to a forward sales estimate 12 months out of USD 24.8 per share and adds USD 4.7 per share of cash. That target represents 23% upside from the USD 305.84 close, but Bernstein remains on the sidelines until it better understands the differentiation of Snowflake's AI offering and the sustainability of the current growth acceleration.

Analysis framework

Bernstein first compares 2Q27 revenue, profitability and EPS with consensus, then tests the durability of the acceleration using customer additions, NRR, RPO/cRPO and AI-product adoption. It examines how core consumption and AI interact, evaluates guidance and updates its financial forecasts, then considers where enterprise data and AI workloads may reside as competition evolves. Finally, it rolls the valuation forward and applies a higher EV/sales multiple while retaining a cautious rating because the stronger outlook is partly offset by valuation and strategic uncertainty.

Methodology notes

• Event-Driven and Behavioral FinanceExpectation Gap and Expectation Management

  Earnings and guidance relative to consensus expectations

  The report measures the quarter's surprise by comparing reported revenue, margins and EPS with consensus, then compares 3Q27 guidance with pre-quarter expectations to judge whether acceleration is likely to continue.

• Corporate Fundamentals and Finance

  Consumption-business KPI triangulation

  Because Snowflake's consumption model creates in-quarter volatility, Bernstein does not rely on cRPO alone. It combines product-revenue growth, NRR, new-customer activity, contract size, RPO/cRPO and product adoption to assess the durability of growth.

• Valuation methods

  Forward EV/Sales valuation with net cash

  Bernstein applies a 15-times EV/sales multiple to its sales estimate 12 months forward, equal to USD 24.8 per share, and adds USD 4.7 per share of cash to derive the USD 377 target price.

Asset mapping & comparison

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

• Snowflake Inc (US.SNOW)

  The primary covered equity; Bernstein maintains Market-Perform with a positive bias and raises the price target to USD 377.

  Strengths

  Broad-based 37% product-revenue growth, accelerating core consumption, rapid AI-product adoption, strong new-customer and cRPO growth, higher guidance and improving operating margins.

  Weaknesses

  NRR remained flat at 126%, AI workloads currently dilute product gross margin, and the long-term differentiation and monetization of Snowflake's AI platform remain uncertain.

  Comparison

  Snowflake's 28.8% next-twelve-month revenue growth and 16.4x EV/next-twelve-month revenue in the report's comparison table place it among the faster-growing but more highly valued software names.

  Risks

  Competition from hyperscalers, AI labs, SaaS vendors, data-platform providers and data-federation tools could limit Snowflake's growth or shift AI workloads toward systems of record.

Key data

• 2Q27 total revenueUSD 1.547 billionUp 35% year on year and 4.5% above consensus.
• 2Q27 product revenueUSD 1.492 billionUp 37% year on year, versus 34% growth in the prior quarter, and about 5% above consensus.
• 2Q27 non-GAAP operating margin15.3%Up four percentage points year on year and above 12.6% consensus.
• 2Q27 product gross margin74.7%Slightly below consensus as AI workloads carried a lower contribution margin.
• 2Q27 non-GAAP diluted EPSUSD 0.62USD 0.17 above the USD 0.45 consensus.
• Net new customers69232% year-on-year growth in 2Q27.
• CoWork account adoption11% quarter-on-quarter growthEvidence of rapid customer adoption of Snowflake's AI products.
• CoCo account adoption28% quarter-on-quarter net growth; 9,100 accountsCoCo was a meaningful contributor to AI-related revenue.
• NRR126%Flat quarter on quarter and only one percentage point higher year on year.
• RPO and cRPO growth30% and 40%cRPO accelerated, but Bernstein cautions that it is not a clean standalone indicator for a consumption-based model.
• 3Q27 product-revenue guidanceUSD 1.588-1.593 billion; 37%-38% growthGrowth guidance compares with 29% consensus.
• 3Q27 non-GAAP operating-margin guidance15.5%Above 14.2% consensus.
• FY27 product-revenue guidanceUSD 6.070 billion; 36% growthRaised from USD 5.840 billion and 31% growth.
• FY27 product gross-margin guidance74%Lowered from 75% due to the higher mix of lower-contribution AI workloads.
• FY27 non-GAAP operating-margin guidance14.5%Raised from 13.5%; adjusted free-cash-flow margin remained 23%.
• Bernstein total-revenue estimatesFY27 USD 6.391 billion; FY28 USD 8.490 billionRaised from USD 6.228 billion and USD 7.927 billion, respectively.
• Target priceUSD 377.00Raised from USD 250.00; 23% above the USD 305.84 close on 2026-09-02.
• Target valuation15x forward EV/SalesRaised from 11x and applied to a 12-month-forward sales estimate of USD 24.8 per share, plus USD 4.7 per share of cash.

Impact & implications

The results strengthen the case that Snowflake has near-term room to sustain revenue acceleration through core workload migration and AI adoption while expanding operating margins. The offset is that AI currently pressures product gross margin and places Snowflake into direct competition with a wider set of platforms. Bernstein therefore recognizes higher growth with a materially higher target price but requires clearer evidence of durable AI differentiation before adopting a more constructive rating.

Risks

• Snowflake may face greater competition from leading IaaS and PaaS vendors.
• Changing customer priorities could weaken demand or alter workload migration plans.
• Data management, analytics and AI activity could shift toward SaaS vendors and systems of record, reducing Snowflake's addressable opportunity.
• Snowflake's AI products may not remain sufficiently differentiated from hyperscaler, AI-lab and application-vendor offerings.
• Upside to Bernstein's forecasts could arise if Snowflake expands successfully into adjacent markets and materially outperforms expectations.
• Successful M&A-led expansion or less intense competition than Bernstein expects could also create upside to the forecasts.

What to watch

• Whether product-revenue growth reaches the guided 37%-38% in 3Q27 and remains accelerated through FY27.
• Whether NRR improves from 126% as recent large customers enter the trailing calculation.
• The breadth and monetization of CoCo, CoWork and other AI-product adoption.
• Whether strong cRPO growth translates into consumption revenue despite in-quarter volatility.
• The effect of the AI workload mix on product gross margin.
• Evidence that Snowflake's AI platform is differentiated from hyperscalers, AI labs, SaaS vendors and Databricks.
• Whether enterprises keep AI workloads on Snowflake or move them toward cloud-based systems of record and data-federation platforms.