Back in March 2025, I rated Snowflake (NYSE: SNOW) as a buy. The stock was trading at around $150, and I believed the company’s long-term prospects combined with an improving valuation made it a compelling opportunity to begin accumulating shares. Fast forward to June, and the stock has surged past $210, marking a strong rally in a short period. So, the question now is: should investors still be accumulating shares, or is it time to pause and hold?
Why Snowflake Looked Attractive in March
Snowflake’s business model has long impressed me. It boasts one of the strongest customer value propositions in the enterprise software space. The company's net revenue retention often exceeds 130%, a sign that customers are consistently increasing their usage. Additionally, customer satisfaction metrics and survey scores remain near the top among enterprise tech firms.
On a revenue basis, Snowflake’s growth has been nothing short of phenomenal. From just $100 million in 2018, it has scaled to $3.88 billion over the trailing twelve months. That trajectory included multiple years of triple- and double-digit growth. However, the pace has been slowing: revenue growth peaked around 2021–2022 and has decelerated since. This deceleration is to be expected as the company matures, but it does influence how investors should assess the stock's valuation.
Revenue Growth: Still Impressive, But Slowing
Let’s break down Snowflake’s revenue story.
From just $100 million in 2018, the company has scaled to $3.88 billion in revenue on a trailing 12-month basis. That’s a remarkable leap—nearly 40x growth in just six years.
But here’s where things get more nuanced.
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2018 to 2019: Revenue tripled
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2019 to 2020: Doubled again
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2020 to 2021: Doubled again
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2021 to 2022: Revenue grew by 75%
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2022 to 2023: Growth slowed to ~33%
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2023 to 2024: Growth slowed even further
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2024 to 2025: Deceleration has continued
Now, some slowdown is natural. It’s much easier to triple revenue when you’re starting from $100 million than when you're trying to grow from $3 billion to $6 billion. And I want to be clear: this doesn’t mean Snowflake is struggling.
It simply means the era of hypergrowth is ending. The company is transitioning into a more mature phase where growth becomes steadier, not explosive.
However, this deceleration does affect how we think about valuation. Investors should be willing to pay less for a company with slowing growth—especially if margins and other financial metrics aren’t compensating for the slowdown.
Slowing Revenue Growth
Snowflake’s revenue growth has meaningfully decelerated from its early years:
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2018–2021: Hypergrowth phase with revenues doubling or tripling annually.
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2022–2025: Growth has slowed to ~20–30% annually and continues to decelerate.
Risk: Investors paying a high valuation may expect a reacceleration or sustained growth, and any further slowdown could compress the stock’s multiple.
Margin Compression Amid AI Investment
Operating margins and free cash flow margins peaked in 2023 but have since declined:
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Operating cash flow to sales dropped from ~30% to ~21.7%.
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Heavy investments in AI R&D and infrastructure are eating into profitability.
Risk: If these AI investments don’t translate into accelerated revenue or higher-margin products, margins may stay depressed longer than anticipated.
High Valuation
Snowflake now trades at a forward P/FCF of 56, one of the richest multiples among large-cap software firms.
Risk: Valuation leaves little room for execution missteps. Any negative surprise on growth, cash flow, or guidance could result in a sharp re-rating of the stock.
Intensifying Competition
Snowflake competes with major cloud-native and traditional data players:
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Amazon Redshift, Google BigQuery, Microsoft Azure Synapse — direct platform rivals.
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Databricks and Palantir — competing in AI-driven analytics, often at lower cost structures.
Risk: Snowflake could face pricing pressure, market share erosion, or slower customer adoption as competition intensifies in the AI and data infrastructure stack.
5. Platform Dependency on Hyperscalers
While Snowflake is cloud-agnostic, it runs entirely on AWS, Azure, and Google Cloud infrastructure.
Risk: Its gross margins are influenced by hyperscaler pricing. Any change in vendor agreements, platform disruptions, or more aggressive bundling by competitors (like AWS integrating Redshift with other services) could impact Snowflake’s customer value proposition and profitability.
Sluggish Progress Toward Profitability
Despite impressive top-line growth, Snowflake still reports negative ROIC (currently around -26%).
Risk: Investors may grow impatient if path to profitability on a GAAP basis doesn’t improve meaningfully. Continued negative ROIC also limits capital efficiency compared to software peers.
Dilution Risk from Stock-Based Compensation
Like many high-growth tech firms, Snowflake relies heavily on stock-based compensation:
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SBC significantly contributes to cash flow metrics but dilutes shareholders over time.
Risk: High levels of SBC can erode per-share value and hide true operating leverage.
Macro Sensitivity and IT Budget Cycles
Snowflake’s customers are mostly large enterprises. As macroeconomic uncertainty affects IT spending:
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Customers may delay expansion or reduce workloads.
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Deals could elongate, and usage-based billing may flatten.
Risk: A cyclical pullback in tech spending could disproportionately hurt growth, especially if usage doesn’t scale as anticipated.
Margins and Cash Flow Trends
One of the key financial indicators I track is the operating cash flow to sales ratio. For Snowflake, this metric improved dramatically in recent years, going from -150% to a peak of over 30% in 2023. However, that number has since declined to around 21.7%. While still solid, it's a clear indication that the profitability trajectory is no longer accelerating.
We see a similar trend in return on invested capital (ROIC). Snowflake had been making excellent progress, improving from -36% to -21%, but that trend has now reversed slightly, with ROIC falling back to -26%. This reflects both the cost of heavy AI investments and a shift in operating leverage dynamics.
These metrics don't signal trouble per se—Snowflake remains fundamentally strong. But they do indicate that the business is no longer in hyper-growth mode. When valuations are high, I become more selective. For premium-priced stocks, I want to see revenue growth accelerating, margins expanding, and ROIC improving. Snowflake doesn’t currently meet all of those criteria.
Return on Invested Capital: Improvement Reversed
For a while, Snowflake was making meaningful progress on ROIC (Return on Invested Capital)—a sign that the business was becoming more capital-efficient. It had improved from -36% to -21%, which was a strong upward trend. But recently, we’ve seen that progress stall and even reverse, with ROIC now back down to -26%.
Again, not catastrophic—but it’s another indicator that the momentum is cooling. We’re no longer seeing improvements across every metric like we were in 2022 and 2023.
Now to be fair, Snowflake is investing heavily into AI, which could be transformative over the long term. These investments will compress margins in the short run, but if they bear fruit, they’ll strengthen the moat and create new growth vectors.
Still, in the present moment, the numbers are what they are: slower revenue growth, declining margins, and no longer-improving capital efficiency.
Valuation: From Reasonable to Rich
At the time of my March 2025 recommendation, Snowflake was trading at a forward price-to-free cash flow (P/FCF) ratio slightly above 40. That seemed justified given the quality of the business and its recent financial performance. But today, with the stock price above $210, the forward P/FCF has ballooned to 56.
That’s a premium valuation by any standard. Back in 2022, I would have considered it reasonable, because Snowflake was improving across all key metrics. Today, we’re seeing some slowing, and the premium multiple no longer feels as justified.
Using a discounted cash flow (DCF) model, I estimate Snowflake’s intrinsic value at around $124 per share. At current levels, the market price implies a nearly 70% premium to fair value. That doesn’t mean the stock can’t go higher—but it does mean the margin of safety has vanished.
Intrinsic Value: What Snowflake Is Really Worth
Based on my discounted cash flow model, I currently estimate Snowflake’s intrinsic value at $124 per share.
At today’s market price of $211, that implies the stock is trading at a ~70% premium to intrinsic value.
Now, intrinsic value models aren’t perfect—but they’re useful guideposts. And when a stock trades this far above fair value, I have to reclassify it from “accumulate” to “monitor.”
Final Verdict: Hold, Don’t Buy
If you accumulated shares of Snowflake in the $150–170 range, I believe you made a good long-term investment. I recommend holding those shares and allowing the business to grow into its valuation. However, for new investors, I think the accumulation window has closed—at least for now.
Snowflake remains a great business with excellent long-term potential. But as a stock, it's no longer priced attractively given the deceleration in growth and margin compression. I suggest putting it on your watchlist and waiting for a better entry point before adding new capital.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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Comments
possibly until it hits $300