This Top Technology Stock Just Jumped. Here's Why You May Want to Buy It Hand Over Fist.

Harsh Chauhan, The Motley Fool

Thu, Mar 6, 2025, 7:01 AM 5 min read

Shares of Snowflake (NYSE: SNOW) jumped 4.5% on Feb. 27 following the release of the company's fiscal 2025 fourth-quarter results (for the three months ended Jan. 31) the previous day. The stock's jump was well deserved, as it crushed Wall Street's expectations by a big margin.

The company, which is known for providing a data cloud platform that allows customers to securely store, consolidate, and act upon their data from a single source of truth, has been witnessing solid growth in demand for its offerings thanks to artificial intelligence (AI). As a result, it wasn't surprising to see Snowflake's guidance for the new fiscal year exceeding Wall Street's estimates.

However, there is a good chance that Snowflake could exceed its own expectations in fiscal 2026.

Snowflake ended fiscal 2025 with product revenue growth of 30% to almost $3.5 billion. The company's earnings, however, fell 15% year over year thanks to its investments in AI infrastructure.

It's worth noting that Snowflake's data cloud solutions are witnessing such strong demand that its customers are completing their purchase obligations ahead of schedule. What's more, those customers are continuing to purchase more of its solutions on a pay-as-you-go basis.

AI seems to be playing a central role in driving this solid demand. On its latest earnings conference call with analysts, Snowflake management pointed out that 4,000 customers are using its AI and machine learning (ML) tools on a weekly basis. That's a healthy increase of 25% from the previous quarter, and is faster than the 5% sequential increase in the company's overall customer base.

Given that Snowflake ended fiscal Q4 with just over 11,100 customers, there is still a significant user base that's yet to adopt its AI solutions. This opens up a nice cross-selling opportunity for the company. Success in that endeavor should have a positive effect on both its revenue and margins.

The good part is that the adoption of Snowflake's AI tools by more customers is leading to a sharp improvement in its revenue pipeline. The company ended fiscal 2025 with remaining performance obligations (RPO) of $6.9 billion, an increase of 33% from the year-ago period. RPO is the contracted future revenue that Snowflake is yet to recognize, and this metric is well above the $4.3 billion product revenue it's expecting in fiscal 2026.

So, the faster growth in this metric as compared to the company's overall revenue suggests that it's winning new business at a faster pace than the contracts that it is fulfilling. Moreover, the higher spending by existing customers, which is evident from its net revenue retention rate of 126% last quarter, should have a positive effect on margins.