Hook / Thesis
Snowflake (SNOW) sold off into the close on 01/13/2026, trading near $208.51 after a brief risk-off move. That pullback presents a tactical opportunity: the business is still growing, gross margins are improving, operating losses are narrowing, and management continues to position the platform around AI -- all while the multiple has come down. I am upgrading SNOW to Buy the Dip for a swing/position trade.
My view is simple: customers are buying more cloud data capacity and analytics engines, we can see sequential revenue expansion across the last three reported quarters, and the unit economics (gross margin and operating-loss trend) are moving in the right direction. Combine that with clear AI-related M&A activity and the stock trading meaningfully below recent highs and you have a defined risk/reward trade.
Business in one paragraph - and why the market should care
Snowflake is a cloud-native data platform that centralizes data across public clouds to power analytics, engineering and AI use cases. The reason investors should care is that enterprises increasingly treat data as the input to their AI stacks; Snowflake sits where those datasets live, and its consumption-based pricing means growth and monetization scale with customer usage. For a company with high gross margins and recurring consumption, small improvements in retention / usage can drive attractive revenue and free cash flow upside.
What the numbers say (recent quarters)
- Top line momentum: Revenue has moved higher sequentially over the last three quarters reported in this dataset: Q1 (02/01/2025-04/30/2025) revenue was $1,042.07M, Q2 (05/01/2025-07/31/2025) was $1,144.97M and Q3 (08/01/2025-10/31/2025) was $1,212.91M. That’s clear sequential scale and implies end-market demand is holding.
- Expanding gross margins: Gross profit improved from $693.29M in Q1 to $773.15M in Q2 and $822.04M in Q3. Gross margin is roughly 66.6% in Q1, ~67.5% in Q2 and ~67.8% in Q3 (gross profit / revenue), showing modest but consistent improvement in unit economics as the product scales.
- Narrowing operating loss: Operating loss improved from -$447.26M in Q1 to -$340.28M in Q2 and -$329.47M in Q3. Reduction in operating loss (absolute dollars) while revenues increase suggests operating leverage beginning to kick in.
- Positive operating cash flow: Operating cash flow was positive across the last three quarters with $228.37M (Q1), $74.90M (Q2) and $137.52M (Q3). The pattern is lumpy but the business is producing cash from operations even as management invests for growth.
- Balance sheet scale: As of the Q3 filing (accepted 12/05/2025), total assets are reported at $8.230B and liabilities at $6.097B. Equity attributable to parent was $2.133B. The balance sheet provides operating flexibility for M&A or continued investment.
Valuation framing - where the multiple sits and why it matters
Price action: the snapshot price on 01/13/2026 shows SNOW trading at $208.51 (down ~5.3% on the session). Using the company-reported diluted average shares for the most recent quarter (339,648,000 shares) we get an approximate market capitalization of ~$70.8B (208.51 * 339.648M ≈ $70.8B). The dataset does not explicitly publish a market cap line item, so this is an approximate calculation from reported shares and the current price.
Revenue run-rate: the last three quarters sum to roughly $3.400B. Annualizing those three quarters (4/3 factor to approximate a run-rate) yields an implied revenue run-rate of ~ $4.53B. Dividing the market-cap estimate by that annualized run-rate gives an implied P/S of ~15.6x. That multiple is lower than where the stock traded at its cyclical highs in the price series, and materially below the extreme valuations we saw earlier in the cycle. It's still a premium multiple for a software-like business, but it is justified only if growth and margin expansion continue.
Important caveat - the dataset doesn't include an explicitly reported RPO figure or a one-line historical valuation table. I note that RPO is not available in the provided filings in this dataset; management typically reports remaining performance obligations in earnings commentary, but that line is absent here. Because RPO is a key leading indicator for SaaS revenue visibility, I would want to confirm improving RPO in the next earnings/press release to move from a tactical buy to a conviction buy.
Catalysts to drive upside (2-5)
- AI-related M&A and partnerships: News in early January 2026 points to Snowflake strengthening its AI moat via activity around Observe (reported articles note acquisition interest / deals). Any announced transaction that enhances observability or telemetry for AI workloads could accelerate enterprise spending inside Snowflake’s platform.
- Continued sequential revenue and margin improvement: If the next quarter continues the Q1-Q3 revenue upswing and gross margin expansion, the valuation multiple would look increasingly attractive relative to growth.
- Large-customer expansion and cross-sell: Snowflake’s consumption model means that meaningful expansion in a handful of large customers can bump throughput and revenue disproportionately. Any public wins or disclosed large deals would be a near-term catalyst.
- Macro / risk-on rotation: Sentiment-driven rebounds in software / AI names could re-rate Snowflake quickly; the stock’s movement in the price history shows sizable swings that can be captured with a staged exit plan.
Trade plan (actionable)
- Trade direction: Long (Buy the Dip - Upgrade to Buy)
- Entry: 200-210 (preferential fill zone around current price of $208.51)
- Initial stop: $180 (protects against a deeper repricing; signals a material change in sentiment or a negative fundamental surprise). This is ~13% below the current price midpoint of the entry band.
- Primary target (near-term): $260 - captures move back toward the recent multi-month highs and reflects a ~24% upside from a $210 entry.
- Stretch target (if fundamentals confirm): $310 - if revenue/margins accelerate and M&A drives visible traction this becomes reachable over a multi-quarter horizon.
- Position sizing: Keep initial allocation modest (e.g., 2-4% of capital) and add on confirmation (quarterly beat, margin expansion, or clear evidence of higher RPO/ARR trends).
- Time horizon: Swing to position trade - expect to hold weeks to several quarters depending on catalyst flow.
Risks and counterarguments
All trades have downside risk. Below are the principal risks and a balanced counterargument:
- Valuation still elevated: Even after the pullback, implied P/S (~15.6x on an annualized run-rate) is elevated versus mature software names. If growth slows, multiples compress quickly.
- Execution and cost control: Snowflake is still operating at a loss (operating loss of -$329M in Q3). If operating leverage reverses or spend accelerates without revenue follow-through, cash flow could turn negative and force a multiple reset.
- Competition and price pressure: The cloud data market is crowded; hyperscaler dataset services and other vendors could compete on price or tightly integrate with AI stacks, pressuring Snowflake’s growth or margins.
- M&A integration risk: The company is reportedly active on AI-related deals (news items mention Observe). Any acquisition can take time to integrate; if deals are expensive or fail to deliver cross-sell lift, near-term returns may disappoint.
- Macro / hyperscaler capex risk: If enterprise IT spending slows or if hyperscalers re-price or channel data services differently, Snowflake’s consumption model could be impacted.
Counterargument: One could reasonably argue that the multiple still embeds high growth expectations and that the company must show sustained operating leverage to justify it. If next quarter’s revenue growth decelerates or operating losses widen again, the trade loses its rationale. That is why the stop and staged targets are essential.
What would change my mind
- Negative triggers that would force me to abandon the trade: a sequential revenue decline, widening operating losses (Q-over-Q), or a return to negative operating cash flow would flip my view to neutral/short coverage.
- Positive triggers that would increase conviction: management disclosure of rising RPO/ARR, an announced acquisition with clear revenue synergies, or a quarter that shows both revenue acceleration and margin expansion beyond the Q1-Q3 trend.
Bottom line
Snowflake’s recent quarter-to-quarter data show an enterprise-grade growth profile: revenues are rising, gross margins have ticked up to ~67.8% in the latest quarter, and operating losses are trending smaller. The stock’s pullback has compressed the implied multiple to a level that makes a tactical buy-the-dip trade reasonable, provided risk is controlled with a defined stop.
Trade the name with stop discipline: enter in the $200-210 zone, stop at $180, and use $260/$310 as staged upside targets, adding only on positive confirmation from upcoming results or disclosed RPO/ARR improvements. If Snowflake fails to sustain revenue momentum or loses control of operating leverage, exit the trade and reassess.
Disclosure: This is not investment advice. I use only the company filings and price data available here to build the trade idea; investors should confirm latest filings, listen to management commentary and size positions according to their risk tolerance.