Can Snowflake Capitalize In The Age Of AI?

Snowflake lost 20% of its value as 2025 projections were well below analyst expectations. 

Here are 5 reasons why this guidance is overly conservative and Snowflake is well-positioned to capitalize in the Age of AI.

1. CEO Transition and Strategic Opportunity:

While the departure of CEO Frank Slootman is undoubtedly a loss, his replacement, Sridhar Ramaswamy, brings a wealth of experience as Google’s Advertising lead and a strong track record in AI and product leadership. The conservative guidance is likely put in place to provide Ramaswamy with the necessary "wiggle room" to implement strategic and operational changes, ultimately exceeding expectations as the year progresses.

2. Conservative Guidance Methodology:

CFO Mike Scarpelli's changes to the guidance methodology, including a higher weighting on recent performance and using 2024 consumption patterns as a baseline, paint an overly cautious picture:

• Holiday Season Headwinds: Using the holiday period, typically slow for consumption, as a benchmark for Q1 revenues skews the outlook negatively.

• 2024's Tale of Two Halves: The year started slow due to customer spending optimization and macro caution, but ended with a surge in AI optimism. Basing 2025 figures solely on 2024 data ignores this positive momentum.

3. Headwinds and Tailwinds:

Snowflake's 2025 guidance acknowledges near-term headwinds like tiered storage, Iceberg tables, and ARM chips impacting revenue growth. While these features improve the long-term value propositions for customers and ultimately lead to workload growth, they create a 6% headwind in the short term.

• Tiered storage pricing:  Large customers can reduce costs using tiered pricing. 

• Iceberg Tables:  Customers can leverage iceberg tables, move data out of Snowflake into the underlying cloud storage instead, and reduce storage costs.

• ARM Chips: Adding the option to run workloads on ARM chips provides a cheaper alternative.Subscribe now

However, excluding anticipated tailwinds from the guidance presents a potentially incomplete picture. New products add potential beyond the initial guidance.

• Document AI extracts structured information from unstructured data.

• Snowflake CoPilot adds natural language interactions.

• Snowpark Container Services train and deploy LLMs using Nvidia GPUs.

• Snowflake Cortex is a fully managed service to build AI applications for forecasting, anomaly detection, or summarizing data.

4. Growth In Headcount

Snowflake's continued hiring, particularly in the AI engineering space, indicates management's strong belief in its future despite the recent guidance adjustment. This sustained growth in personnel, with a focus on AI talent, signifies their commitment to capturing the AI market opportunity.

5. Strong Bookings :

Bookings were strong, including a 42% YoY increase in Remaining Performance Obligations and a significant $250 million deal:

• Positives: The strong bookings demonstrate continued customer traction and confidence in the platform.

• Caveat: The recent sales compensation shift towards incentivizing consumption over bookings may have contributed to inflated bookings in Q4 as sales reps maximized their pipelines before the change.

When long-term thinking prevails, investors will realize that the weak guidance associated sell-off was an opportunity.

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