Snowflake Earnings Call Highlights AI-Fueled Growth

Snowflake, Inc. ((SNOW)) has held its Q4 earnings call. Read on for the main highlights of the call.

Snowflake’s latest earnings call struck an upbeat tone, underscoring that robust growth and rising AI adoption are more than offsetting emerging headwinds. Management highlighted strong product revenue, a surging backlog and improving margins, while cautioning investors about modest deceleration, AI‑driven cost volatility and integration drag from recent acquisitions.

Q4 Revenue Growth Fueled by Core and AI Workloads

Product revenue climbed 30% year over year in Q4 to $1.23 billion, reflecting both solid core data‑platform demand and a noticeable lift from AI workloads. Management framed this as evidence that AI is no longer experimental for customers but an incremental, durable source of consumption on the platform.

RPO Acceleration Signals Deepening Demand Visibility

Remaining performance obligations reached $9.77 billion, with growth accelerating to 42% year over year, a key indicator of strengthening forward bookings. This bulging backlog provides Snowflake and investors with improved visibility into future revenue, suggesting that large customers are locking in longer‑term commitments.

Net Revenue Retention Stays High at 125%

Net revenue retention held at a healthy 125%, showing that existing customers continue to expand their spending on the platform. The metric underscores Snowflake’s land‑and‑expand model, where customers start with one workload and steadily add more data, use cases and now AI capabilities.

Customer Base Broadens and Big Spenders Multiply

Snowflake added 2,332 net new customers over the fiscal year, including 740 in Q4 alone, a 40% year‑over‑year increase that pushed total customers above 13,300. High‑spend cohorts also grew, with customers over $1 million in trailing‑12‑month spend rising to 733 and those above $10 million jumping to 56.

AI Adoption Surges Across Snowflake Intelligence and Cortex

Accounts using AI surpassed 9,100, highlighting rapid uptake of Snowflake’s newer offerings. Snowflake Intelligence scaled to more than 2,500 accounts, nearly doubling quarter over quarter, while Cortex Code reached over 4,400 customers, helping them develop and deploy AI workloads faster on the same data platform.

Record Mega‑Deals Showcase Strategic Commitment

The company signed the largest contract in its history, exceeding $400 million in total value, alongside seven nine‑figure deals versus two a year ago. These mega‑deals signal that major enterprises are aligning multi‑year budgets with Snowflake’s AI and data strategy, providing long‑term revenue and strategic validation.

Margin Expansion and Strong Free Cash Flow

Non‑GAAP operating margin for fiscal 2026 expanded to 10.5%, more than 400 basis points higher year over year, reflecting improving operating leverage. Product gross margin reached 75.8%, while adjusted free cash flow margin hit 25.5%, supporting share repurchases of about $150 million and leaving $4.8 billion in cash and investments.

M&A and Partnerships Extend the AI and Data Ecosystem

Snowflake closed the roughly $600 million acquisition of Observe to strengthen observability and AI operations capabilities atop its data cloud. It also expanded partnerships with OpenAI, Anthropic, SAP and Google Cloud’s Gemini models, broadening model choice for customers and enhancing its go‑to‑market reach in the AI ecosystem.

Product Velocity and Tighter Control of Stock Compensation

Over the year, Snowflake launched more than 430 product capabilities, underscoring rapid innovation across data, AI and governance. Stock‑based compensation fell to 34% of revenue from 41% and is expected to drop toward about 27% in fiscal 2027, signaling increased discipline on operating efficiency and shareholder dilution.

Guidance Points to Slower but Still Strong Growth

Management guided Q1 fiscal 2027 product revenue to $1.262–$1.267 billion and full‑year product revenue to about $5.66 billion, both implying roughly 27% growth. That marks a modest step down from the 30% pace in Q4, suggesting Snowflake is planning for durable, but more measured, expansion as the business scales.

AI‑Driven Gross Margin Pressure Emerges

For fiscal 2027, Snowflake expects non‑GAAP product gross margin of 75%, about 80 basis points below last year’s 75.8%. The company linked this pressure to new AI products that currently carry lower margins, which temporarily offset efficiency gains in the core data storage and compute business.

Observe Deal Adds Growth but Weighs on Free Cash Flow

The Observe acquisition is projected to contribute roughly one percentage point to fiscal 2027 product revenue growth, giving a small top‑line boost. However, it is also expected to shave about 150 basis points from non‑GAAP adjusted free cash flow margin, as integration and investment needs temporarily raise costs.

Managing AI Consumption Volatility and Workforce Shifts

Management warned that rapid AI agent adoption could create “sticker shock” for customers if usage spikes faster than expected, complicating short‑term consumption predictability. Snowflake plans safeguards such as per‑user caps, while also navigating a small Q4 reduction in force and integrating 178 Observe employees into the fiscal 2027 hiring plan.

Guidance and Outlook Emphasize Durable Growth and Discipline

Snowflake’s outlook calls for roughly 27% product revenue growth in fiscal 2027, a 75% product gross margin and an improving 12.5% non‑GAAP operating margin. The company also projects a 23% adjusted free cash flow margin despite the Observe drag, with hiring front‑loaded in Q1 and bookings and cash flow expected to be heavily weighted toward Q4, similar to last year.

Snowflake’s earnings call painted the picture of a company moving deeper into enterprise‑scale AI while still delivering strong growth and better profitability. Investors must weigh modest margin compression and AI‑related unpredictability against surging demand, larger strategic deals and a clear signal that the business can grow at scale without sacrificing financial discipline.