Snowflake Stock Just Took a Hit: 3 Reasons I'm Not Buying the Dip
Snowflake's stock fell after reporting fiscal Q3 results, despite impressive revenue growth and AI focus. Persistent GAAP net losses, decelerating growth, and high valuation are reasons not to buy the dip. The company reported a $294 million GAAP net loss, with stock-based compensation driving expenses. Growth slowed to 29% from 32%, and shares trade at 20 times sales, limiting room for missteps. The author might reconsider if Snowflake achieves GAAP profitability and maintains or lowers its current stock level.
Snowflake (SNOW 11.45%) shares slid in after-hours trading on Wednesday, Dec. 3, when the data cloud platform specialist reported fiscal third-quarter results.
Revenue growth remained impressive, and management leaned heavily on artificial intelligence (AI) themes during the earnings call. The tech company, which provides data warehousing and analytics tools that run across major public clouds, continues to add large customers and maintain a robust net revenue retention rate. But this wasn't enough to excite Wall Street in light of a valuation that already prices in near-flawless execution.
Does the market's decision to punish the stock make sense? Or is this a buying opportunity?
Here are three reasons I personally don't think Snowflake stock is worth buying on this dip.
Image source: Getty Images.
1. Persistent net losses
Snowflake's fiscal 2026 third-quarter revenue rose 29% year over year to $1.21 billion. Yet the company still reported a generally accepted accounting principles (GAAP) net loss of $294 million, only slightly better than the approximately $324 million loss it posted in the third quarter of fiscal 2025.
The cumulative picture is even starker. Over the first nine months of fiscal 2026, Snowflake's GAAP net loss reached about $1.02 billion, compared with roughly $958 million in the same period a year earlier. That kind of deficit is hard to square with a business that already produces more than $1 billion in quarterly revenue and has a market capitalization of about $85 billion.
A major driver of Snowflake's expenses is stock-based compensation, which came in at $442 million in the quarter, up from roughly $363 million in the year-ago period, which works out to well over one-third of revenue. On a GAAP basis, operating margin was -27% in the third quarter, while the non-GAAP operating margin, which strips out stock-based compensation and certain other items, was 11%.
Snowflake does produce positive free cash flow, and management is targeting an impressive adjusted free cash flow margin of 25% for fiscal 2026. Even so, the persistent GAAP losses show how dependent the company remains on stock-based compensation to support its business.
2. Growth is decelerating
Snowflake's growth profile remains enviable, yet the trend is clearly slowing. Product revenue rose 29% year over year to $1.16 billion in fiscal Q3 -- down from 32% growth in fiscal Q2.
Management's guidance calls for fiscal fourth-quarter product revenue (the bulk of Snowflake's total revenue) between $1.195 billion and $1.2 billion, which implies growth of about 27% from the prior-year period.
The business is still expanding rapidly. But decelerating growth at a time when Snowflake is still reporting losses, yet still commands a significant market capitalization, isn't a good combination.
NYSE: SNOW
Key Data Points
3. Shares look too expensive
Probably the main issue with Snowflake (and the main reason I'm not willing to buy shares today) is valuation. With shares trading at about 20 times sales even as the business continues to report big losses, the market has already priced in more strong revenue growth and big profits down the road.
In other words, even after the post-earnings drop, Snowflake's valuation leaves limited room for any potential missteps like slower-than-expected adoption of its AI offerings or a meaningful deceleration in top-line growth.
Overall, I think Snowflake's business is great. But the stock is just too pricey.
If Snowflake's business can demonstrate sufficient scale to swing to GAAP profitability at some point in the next few quarters, and if the stock is still trading at its current level or lower, I might reconsider and turn bullish.
