Snowflake's Q3 Earnings Report Looms as Critical Test for AI Data Stock Thesis

What happened

Snowflake is set to report its fiscal third-quarter 2025 earnings on December 3, with the options market indicating expectations of significant stock price volatility. This event unfolds against DeepValue's HOLD/NEUTRAL rating, which highlights Snowflake's strong fundamentals like 126% net revenue retention and 580 customers over $1 million in TTM product revenue. However, the report must address elevated valuation concerns, including a P/S ratio of ~18.7x and competitive pressures from hyperscalers and Databricks. Investors are weighing whether the AI-driven rally in data stocks can persist, given Snowflake's consumption model variability and execution risks in AI services like Cortex and Arctic. A critical view suggests that any miss on growth or margin metrics could exacerbate valuation overhangs, while beats may not fully justify current multiples amid open-format monetization challenges.

Implication

The earnings report will provide essential data on whether Snowflake's net revenue retention remains robust, a key indicator of customer loyalty and expansion potential. Positive results in AI service adoption, such as increased usage of Cortex and Arctic, could validate the company's strategic pivot and support a more bullish outlook. Conversely, any deceleration in product revenue growth below the mid-20s percent range or signs of margin compression from open formats like Iceberg would heighten execution risks. The options market's anticipation of volatility reflects the high stakes, with outcomes potentially reinforcing or undermining the current HOLD thesis. Long-term, sustained performance on these fronts is crucial for justifying Snowflake's premium valuation and fending off intensifying competition.

Thesis delta

The upcoming earnings report could shift the HOLD/NEUTRAL thesis if it reveals material changes in key watch items like net revenue retention or AI adoption. Evidence of NRR sustaining above 120% and clear uptake in Cortex/Arctic would support a move toward BUY, while deterioration below 115% or stalled progress in Postgres could lean toward SELL.