Is Snowflake (NASDAQ:SNOW) a Growth Stock Worth Buying?

My view is that more money equals more options in life. That’s why the name of the game in investing is to build wealth over time. One of the proven ways to build wealth is to purchase stocks of established businesses in flourishing industries. The cloud-based data storage company Snowflake (SNOW) is a business operating in a promising industry.

Operationally, I believe there’s a strong case to be made for Snowflake. The company is a trusted provider in an industry with massive growth potential. However, even after falling 36% this year (see chart below), the stock’s valuation paints the picture of a market that’s expecting too much from Snowflake. This is why I rate SNOW stock a Hold.

Snowflake Beats Expectations

Snowflake’s Fiscal second-quarter earnings were respectable, which feeds into my Hold thesis. The company’s revenue rose 28.9% from a year ago to $868.8 million. Snowflake’s topline growth was inline with a 28% jump in its number of customers (510), contributing greater than $1 million in trailing 12-month product revenue.

That implies many existing customers are ramping up their usage of Snowflake’s products. The company’s non-GAAP diluted earnings per share (EPS) came in at $0.18, which was up sequentially. For more context, that topped the analyst consensus of $0.16 forecast for the quarter.

Future Outlook for Snowflake

The coming years should be positive for Snowflake, which is another reason I rate the stock a Hold. On an industry-wide level, the enterprise infrastructure and application software market is expected to soar by 125% to $342 billion in the year 2028. That’s a nearly 18% compound annual growth rate (CAGR) in Snowflake’s total addressable market. Simply maintaining market share would allow the company’s topline to grow by almost 20% annually in coming years.

It gets even better though as Snowflake is poised to keep gaining market share. According to CEO Sridhar Ramaswamy, recently added Cortex artificial intelligence (AI) and Iceberg features are now generally available to customers. These features are gaining a lot of traction as they help customers accelerate their migration to the cloud. Early indications are that many of the company’s largest customers are going to be leveraging Snowflake’s workloads more in the coming years. As the number of accounts using Iceberg grows from about 400 today into the thousands, it will help power future growth.

That’s why the analyst consensus beyond the current year is encouraging. Snowflake’s non-GAAP diluted EPS is expected to climb 54.3% higher in Fiscal 2026 to $0.90. Another 56.5% jump in non-GAAP diluted EPS to $1.40 is anticipated for Fiscal 2027.

Snowflake’s Financial Health

Snowflake’s finances also position the company for a strong future, which is why I rate the stock a Hold. As of July 31, the company had $3.2 billion in cash on its balance sheet. This was against no long-term debt. Relative to a $42 billion market capitalization, that means the company holds a cash position equal to almost 8% of its market cap. This access to financial resources is important because it provides Snowflake with the ability to execute acquisitions that could improve its competitive position.

Snowflake is also a cash flow machine. In the first six months of Fiscal 2025, it generated $403.8 million in free cash flow. That was up 9.3% over the year-ago period. That’s even as Snowflake hiked its capital expenditures by 62.5% to $21.6 million. This suggests that the company’s cash and short-term investments should grow further in years to come. That’s why Snowflake’s corporate credit rating from S&P Global (SPGI) is A- on a stable outlook. This is a strong investment-grade rating.

The Valuation is Too High

Now for the drawback with SNOW stock. The company’s valuation is too high, which is ultimately why I rate the shares a Hold. Snowflake’s admirable operating fundamentals are canceled out by its valuation. The forward price-to-earnings (P/E) ratio is a blistering 140.5 based on the current analyst consensus for Fiscal 2026 non-GAAP diluted EPS.

If the company had a realistic path to come close to replicating its triple-digit annual non-GAAP diluted EPS growth of the past, such a valuation could be justified. However, Snowflake’s size and scale will likely make this unattainable. That’s why, even with all it has going for it, the analyst consensus is for annual non-GAAP diluted EPS growth of approximately 50% to 60%. This is a very brisk pace of growth, but it’s already priced into the stock price.

Is SNOW Stock a Buy?

Shifting to Wall Street, analysts have a Moderate Buy rating for Snowflake. Out of 34 analysts, 24 have issued Buy ratings and the remaining 10 have assigned Hold ratings in the last three months. The average 12-month price target of $166.24 implies SNOW stock has 31.44% upside from current levels.

Read more SNOW analyst ratings

Conclusion

Snowflake’s growth potential is among the highest of all the stocks that I’ve covered. There’s no doubt that the company is thriving, with new products likely to keep the momentum going. However, until the valuation comes down, I’m standing by my Hold rating.