Snowflake delivered better-than-expected revenue for its first quarter and raised its sales guidance for the rest of the year. But Snowflake stock slipped Thursday as some analysts honed in on the costs of its artificial intelligence push.
In results published late Wednesday, the software firm said that it earned an adjusted 14 cents per share on sales of $828.7 million for the April-ended quarter. On average, analysts projected that Bozeman, Mont.-based Snowflake would post adjusted earnings of 18 cents per share on sales of $787 million, according to FactSet. Adjusted earnings decreased 6% year over year while sales increased 33%.
Meanwhile, Snowflake raised its sales guidance for the year but lowered its outlook for its operating margins, citing rising AI costs.
On the stock market today, Snowflake stock fell 5.4% to close at 154.58. Snowflake stock gained as much as 10% in after-hours action Wednesday.
Snowflake Boosts Guidance Amid AI Push
For the current quarter, Snowflake guided for product revenue of $807.5 million at the midpoint of its range. Analysts were projecting the firm would tally $793 million in product revenue for the July-ending quarter, according to FactSet.
Snowflake also upped its guidance for full-year product revenue to $3.3 billion, from a previously given $3.25 billion.
Product revenue comprises the majority of Snowflake's overall sales. In Q1, Snowflake's product revenue increased 34% to $789.6 million.
"Our core business is very strong," Snowflake Chief Executive Sridhar Ramaswamy said in a news release. "Our AI products, now generally available, are generating strong customer interest. They will help our customers deliver effective and efficient AI-powered experiences faster than ever."
Snowflake also announced it will acquire AI startup TruEra for an undisclosed sum. TruEra sells software that helps developers evaluate and monitor apps that use large language models and other AI tools.
Snowflake Stock: Watching AI Costs
Snowflake shares sank following the company's fourth-quarter earnings report in February, when former Chief Executive Frank Slootman announced plans to retire and Snowflake lowered its sales guidance for its current fiscal 2025.
While Snowflake initially got a much more positive response to its first-quarter earnings, analysts highlighted a couple points of caution. Most notably, the race to win AI business will be a costly one.
"Management lowered the full year margin guide to 3% and free cash flow guide to 26%, as the company now expects increased GPU-related costs related to AI initiatives, the acquisition of TruEra AI and a faster pace of hiring around AI," wrote Evercore ISI analyst Kirk Materne late Wednesday.
Evercore holds a positive outperform rating on Snowflake stock. Materne added that "key take-away for us is that the core business remains healthy," while "it's the very early innings" for the potential benefit from Snowflake's AI-related initiatives.
But others are more cautious. BofA Securities analyst Brad Sills reiterated a neutral call on Snowflake following the report.
"We are encouraged by the ramping investments in AI," Sills wrote to clients Thursday. "However, these investments are likely to take time before having meaningful impact on topline and scale."
Still, analysts overall seemed to like what Ramaswamy had to say in his first quarterly report as Snowflake's chief executive.
"Our greatest take-away from the event is the company's recognition of this moment in time — the AI opportunity ahead and the investment/urgency required to go from leading cloud data platform to leading AI platform," wrote Deutsche Bank analyst Brad Zelnick in a client note Thursday. Zelnick rates Snowflake a buy.
Snowflake will host an investor day on June 4 — where analysts expect to hear more about the company's AI plans.
Snowflake Stock: Technical Ratings
In 2023, Snowflake gained 38%, outpacing the S&P 500. But shares are down 21% so far this year, including Thursday's slide.
Coming into the report, Snowflake stock had a meager IBD Composite Rating of 52 out of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
Further, Snowflake's IBD Relative Strength Rating was 18 out of 99.
