Is Snowflake Stock Riskier Than It Looks? Trefis Team Tue, October 13, 2026 at 3:12 PM EDT 3 min read SNOW -0.67% ^GSPC +0.02% MSFT +0.56% AMZN +0.03% GOOG +0.53% Explore stocks on Coinbase Trading disclosure Trading disclosure The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
Snowflake (SNOW) stock has returned 169% over the past six months, against 14.0% for the S&P 500. Investors appear to believe artificial intelligence has put the company on a faster growth track, and the latest quarter supports that view. Yet on the most recent earnings call, executives pointed out a catch in the AI business. So what is the catch?
What Did Snowflake's Management Flag About AI?
Executives said Snowflake earns less on its AI sales than on the rest of its product lineup. During the fiscal Q2 2027 call on September 2, 2026, the company lowered its fiscal 2027 forecast for adjusted product gross margin to 74%, from 75% on the prior call. Management cited a larger share of sales coming from fast-growing AI workloads, where the contribution margin is lower today.
AI represents a major source of that new growth. Product revenue growth accelerated to 37% year over year in fiscal Q2 2027, and executives noted that AI products contributed about half of that acceleration. Adoption is spreading quickly, as CoWork, one of Snowflake's AI products, expanded to reach 5,800 total accounts in the quarter. So the faster the AI business expands, the more of Snowflake's sales come at a thinner margin.
Snowflake Depends On Product Revenue For 95% Of Sales
Product revenue reached $4.5 billion in fiscal 2026, up 29.2% from the prior year. That segment makes up 95% of Snowflake's total revenue, and the AI workloads are sold directly inside it. The thinner margin on AI therefore sits inside Snowflake's main business, not in a side project.
Current valuations leave little room for that. Snowflake trades at 23.2 times its sales, compared with 3.1 for the S&P 500. The stock also sits just 2.3% below its high for the past year. Yet the company lost money over the past twelve months, so a price-to-earnings ratio is not meaningful. The net margin was negative 20.1%, against a profit of 13.3% for the broader index.
The share price appears to assume that rapid growth will translate into profit. Management noted the company remains on track for a GAAP profit in the fourth quarter of fiscal 2028. However, with a thinner margin on AI sales, Snowflake has less to work with on the way there.
Is Snowflake's Profit Plan Holding Up So Far?
So far, executives say the plan is intact. On the same call, management raised the fiscal 2027 forecast for adjusted operating margin to 14.5%, up from 13.5%. The company stated it is offsetting growing cloud costs with slowing headcount expense. This protects the operating margin, but it is not the same as AI sales becoming more profitable on their own.
Executives shared two other points bearing on the AI margin. First, the makers of leading AI models have been revising their prices down regularly. Second, customers who use AI on Snowflake consume more services across the rest of the platform. When asked exactly how much more, management said it was not yet ready to share exact numbers.
This makes the thinner AI margin a real risk, but a slow one so far. Even a slow risk matters for a stock that has fallen further than the broader market before. Snowflake stock dropped 66% during the 2022 inflation shock, against a 24% decline for the S&P 500.
Adjusted product gross margin is the key number to watch in Snowflake's fiscal Q3 2027 report.
Does This Mean You Should Act On SNOW?
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