Traditional Platforms Will Struggle Under AI Competition And Regulation

Key Takeaways

• Shifting customer preferences toward AI-native platforms and bundled cloud solutions threaten Snowflake's growth, pricing power, and long-term market share.
  
• Rising compliance burdens, sustained high R&D spending, and enterprise cost-cutting could further erode profitability and reduce Snowflake's ability to expand globally.
  
• Strong enterprise adoption, rapid product innovation, and strategic cloud partnerships are positioning Snowflake for durable growth and increasing its importance in data-driven and AI-centric markets.

Catalysts

Provides a cloud-based data platform for various organizations in the United States and internationally.

• The rapid emergence of AI-native data platforms threatens to erode demand for Snowflake's traditional data warehousing products, as customers may shift budget allocations to next-generation solutions that natively integrate AI processing, resulting in slower revenue growth and increasing customer churn.
  
• Escalating global data privacy regulations and cross-border compliance hurdles are likely to restrict Snowflake's ability to serve international customers, increasing operational complexity and raising compliance costs, which will put pressure on net margins and limit addressable market expansion.
  
• Intensifying competition from hyperscale cloud providers-who bundle analytics and AI offerings natively within their platforms-may accelerate customer churn, drive pricing pressure, and compress Snowflake's operating margins, diminishing the company's ability to defend or grow market share over the long term.
  
• Persistent high investment in research and development, combined with ongoing reliance on stock-based compensation as seen through increased hiring, risks diluting profitability and delaying any path to sustainable positive earnings, even if topline growth continues in the near term.
  
• Growing enterprise focus on cost optimization and vendor diversification during macroeconomic uncertainty could push large customers to seek open-source, multi-cloud, or lower-cost alternatives, undermining Snowflake's market power and causing both revenue growth and net revenue retention rates to decline over time.

Snowflake Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Snowflake compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Snowflake's revenue will grow by 21.3% annually over the next 3 years.
• The bearish analysts are not forecasting that Snowflake will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Snowflake's profit margin will increase from -33.5% to the average US IT industry of 7.0% in 3 years.
• If Snowflake's profit margin were to converge on the industry average, you could expect earnings to reach $514.0 million (and earnings per share of $1.54) by about September 2028, up from $-1.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 155.8x on those 2028 earnings, up from -55.5x today. This future PE is greater than the current PE for the US IT industry at 32.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.81%, as per the Simply Wall St company report.

Snowflake Future Earnings Per Share Growth

Risks

• Snowflake is seeing accelerating product revenue growth and robust customer acquisition, especially in large enterprises and Global 2000 firms, which could drive continued increases in revenue, earnings, and cash flow over the long term.
  
• The widespread enterprise adoption of AI and data-driven workflows is increasingly being centered on Snowflake's platform, as evidenced by nearly 50% of new customer wins and 25% of use cases involving AI, supporting durable demand and strengthening revenue resilience.
  
• Major product innovation, rapid launch of new features (250 new features in six months), and sustained investment in R&D are expanding Snowflake's addressable market, enabling the company to capture new workloads, boost customer stickiness, and grow high-margin platform revenue.
  
• Strategic alliances and integration with leading hyperscalers (such as Microsoft Azure, which was Snowflake's fastest-growing cloud platform at 40% year-over-year) position Snowflake as an essential, interoperable layer in multi-cloud and hybrid environments, increasing customer retention and spend.
  
• The ongoing migration from on-premise and first-generation cloud systems to modern cloud data platforms, combined with Snowflake's strong net revenue retention (125%) and rising number of million-dollar accounts, suggests a long runway for growth, high customer lifetime value, and continued operating margin expansion.

Valuation

• The assumed bearish price target for Snowflake is $186.69, which represents two standard deviations below the consensus price target of $260.62. This valuation is based on what can be assumed as the expectations of Snowflake's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $440.0, and the most bearish reporting a price target of just $170.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $7.3 billion, earnings will come to $514.0 million, and it would be trading on a PE ratio of 155.8x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of $229.33, the bearish analyst price target of $186.69 is 22.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.