Snowflake sinks as weak margin forecast overshadows Q3 beat

Snowflake is down 9% in premarket trading on Thursday after the cloud company gave an operating margin outlook that fell short of analyst expectations, reflecting investors’ worries about the profitability of new AI-based products.

The company now expects its adjusted operating income margin for the three months ending in January to come in around 7%, lower than the 8.5% projected by analyst data compiled by Bloomberg. Snowflake also sees product revenue of about $1.2 billion for the coming quarter.

Despite the softer outlook, Snowflake’s most recent quarter was a pretty solid one, with Q3 revenue jumping 29% year over year to $1.21 billion (2% ahead of consensus estimates), driven by higher product revenue, on which CEO Sridhar Ramaswamy commented in a press release that “Snowflake Intelligence, our enterprise AI agent, saw the fastest adoption ramp in Snowflake history.” Earnings also beat, with adjusted earnings per share coming in at at $0.35, 13% ahead of estimates.

The stock’s drop shows how “the bar was high” for Snowflake going into earnings, according to BNP Paribas analyst Stefan Slowinski, as investors had high hopes for the company that rose nearly 70% this year even when rival stocks slumped amid fears of AI disruption.

On Wednesday, the company also announced a $200 million multiyear deal with Anthropic that would make the AI startup’s Claude model available within the Snowflake data environment to more than “12,600 global customers across Amazon Bedrock, Google Cloud Vertex AI, and Microsoft Azure.”