After struggling since the spring, Snowflake (SNOW -2.95%) stock has surged much higher following the release of earnings for its fiscal 2025's third quarter (ended Oct. 31). After an abrupt leadership change and questions about how well it could compete amid the rise of artificial intelligence (AI), the company is again winning over customers and investors.
Amid the renewed confidence in Snowflake stock, investors have gone from questioning whether it is a buy to asking whether it is too late to buy into this recovery. Hence, investors should take a closer look at the company to see how the stock's much higher price affects Snowflake's value proposition.
The state of Snowflake
Snowflake fell from its 52-week high in February when CEO Frank Slootman resigned and named Sridhar Ramaswamy his successor. The move rattled investors, likely because Ramaswamy was a longtime Alphabet's Google executive and only came to Snowflake when it bought Ramaswamy's company, Neeva, in 2023.
Moreover, Snowflake's software was so well-regarded that competitors like Amazon would sometimes market Snowflake's data cloud over its competing product. However, the rise of AI fundamentally changed the cloud and software industries. Also, competition from rival Databricks became an increasing concern.
Ramaswamy was seen as a leader who could help Snowflake maintain an edge in the AI world. On the Q3 2025 earnings call, he mentioned how numerous customers cited Snowflake's ease of use and the quickness with which they derive value from its software, giving Snowflake a competitive advantage over its peers.
Furthermore, Snowflake's efforts at incorporating AI have shown early signs of success. Customers continue to adopt Cortex, its AI and machine learning product for Snowflake users. Additionally, the company reports "massive adoption" of its open data formats, which should help make Snowflake a critical part of an entity's IT infrastructure.
Snowflake's improving financials
Snowflake is definitely on the right track if the financials are an indication. In the third quarter of fiscal 2025, revenue rose 28% from year-ago levels to $942 million. That growth rate resembles the 30% revenue growth in the first nine months of fiscal 2024.
As in previous quarters, operating expenses are tracking slightly ahead of revenue levels. However, investors should remember that this includes stock-based compensation of $363 million, a non-cash expense.
Amid that cost, net losses came to $324 million, more than the $214 million in the year-ago quarter. Still, Snowflake also reported $87 million in adjusted free cash flow for the quarter, confirming that non-cash expenses drive its losses. This news led to a recovery in Snowflake stock. Consequently, it erased almost all its losses over the past year.
Nonetheless, investors have to be aware of some challenges. The company forecasts revenue growth of 23% in Q4, and analysts also forecast a 23% increase for fiscal 2026. That slowing growth may force investors to question its valuation.
Amid ongoing net losses, the company has no P/E ratio, but its price-to-sales (P/S) ratio has now risen to 18. While that makes it a relatively expensive stock, that is a low valuation for Snowflake on a historical basis. If investors believe the stock is back (and the recent recovery in the stock price might indicate that it is so), its valuation may not stop the stock from increasing in the near term.
Should investors buy Snowflake stock?
Considering the company's recovery, Snowflake is likely a buy at these levels. Admittedly, investors might question its valuation as revenue growth slows. Knowing that, investors should probably consider a dollar-cost averaging approach to buying this stock.
However, Snowflake appears to have convinced customers and investors that its new management team is leveling the company up, and that it can prosper in an AI-driven world. Amid such improvements, Snowflake stock is likely to move higher over time.
