Earnings Report Preview | After a surge of nearly 50% this year, Snowflake (SNOW.US) faces a moment of truth regarding its "AI capabilities."

Snowflake (SNOW.US), a cloud computing and AI data platform, will announce its second-quarter financial report for fiscal year 2026 after US stock markets close on September 2, Eastern Time. Against the backdrop of a nearly 50% surge in stock price and high valuations this year, this report is seen as a crucial point to verify whether its AI narrative can continue to deliver results. The market generally expects the company's Q2 earnings per share to reach $0.45, a year-over-year increase of about 29%; total revenue is expected to be $1.48 billion, an increase of nearly 30% year-over-year. The options market suggests that the stock price may experience about a 10% two-way fluctuation following the earnings report. Analysts believe that investors will focus on three key metrics: product revenue growth, remaining performance obligations (RPO), and net revenue retention rate (NRR), while closely watching whether management will significantly raise the full-year guidance to demonstrate that AI-related demand is accelerating into actual revenue. Product Revenue: 30% growth is the baseline; $6 billion full-year guidance is the focal point Snowflake delivered an impressive first-quarter performance, with product revenue reaching $1.33 billion, a year-over-year increase of 34%, significantly faster than the 30% growth in the previous quarter and the 29% in the third quarter of last year. The management attributed this growth to customers migrating more workloads to the Snowflake platform to develop AI applications, while their AI productsespecially the AI programming agent Cortex Code (CoCo)began to contribute incremental revenue. For the second quarter, Snowflake provided a product revenue guidance of approximately $1.4 billion, corresponding to a year-over-year increase of 30%. Although the growth rate is slower than the first quarter, achieving or exceeding this figure would suggest that the acceleration in the first quarter was not a one-time event but a sustainable trend. Another point of interest is the full-year guidance. Snowflake had previously raised its product revenue expectation for fiscal year 2026 to $5.84 billion, a year-over-year increase of 31%, but this figure still falls short of Wall Street's general expectation of around $6.1 billion. Seeking Alpha analyst Louis Gerard pointed out that given the current high market expectations, merely raising the guidance to around $5.9 billion is "far from sufficient." He believes that if management raises the full-year product revenue guidance to close to or above $6 billion, it would be enough to indicate that they indeed see a turning point in AI-related consumption in the second half of the year. Conversely, if the guidance increase is limited, even if the second-quarter results slightly exceed expectations, the stock price may face "buy-the-rumor-sell-the-news" pressure. RPO and Customer Growth: Is the reservoir for future revenue still expanding? Remaining performance obligations (RPO) are an important leading indicator of Snowflake's future contract revenue. In the first quarter, the companys RPO reached $9.2 billion, a year-over-year increase of 38%, indicating that customers are continuing to lock in long-term spending. Meanwhile, Snowflake added 616 new customers in the first quarter, a growth of 38% year-over-year. The company also disclosed that there are 64 customers who spent over $10 million in the past 12 months, and another 79 customers crossed the $1 million spending threshold. These figures suggest that Snowflake's growth is not solely dependent on a few new customers but is based on a broad customer base. If RPO continues to maintain a year-over-year growth rate of over 30% in the second quarter, and the number of large customers increases further, it would indicate that enterprise customers willingness to invest in the Snowflake platform has not weakened due to macroeconomic uncertainties but has actually strengthened under the push of AI readiness demand. Net Revenue Retention Rate: Can AI truly money in customers wallets? Net revenue retention rate (NRR) directly reflects the spending changes of existing customers on the Snowflake platform. In the first quarter, Snowflakes NRR reached 126%, indicating that revenue from existing customers grew by 26% year-over-year (excluding new customers). Management attributed this strong performance to an increase in customer use of AI-related features, especially new products like CoCo and Snowflake Intelligence. Specifically, in the first quarter, over 7,100 accounts utilized the CoCo programming agent, while the number of accounts using Snowflake Intelligence doubled quarter-over-quarter. These AI features not only increase customer stickiness but also directly boost the consumption of the underlying data platform. In the second quarter, if NRR can be maintained around 126% or even further improved, it would send a strong signal to the market: Snowflakes AI strategy is not just a concept but is actively driving existing customers to increase spending. This is precisely the evidence Wall Street is eager to see. Some analysts on Wall Street already anticipate that by fiscal year 2028, Snowflakes revenue and earnings per share will grow by 25.6% and 39.8%, respectively. Analyst sentiment is optimistic, but merely achieving "passing" grades is insufficient for the market Although Snowflake's stock price has nearly doubled since the last earnings report, several Wall Street firms remain optimistic ahead of the earnings release. Oppenheimer analysts stated that their channel survey shows strong consumption and project reserves for Snowflake across various regions and vertical industries, with good momentum in large transactions, accelerated migration activities, and rapid expansion in CoCo usage. RBC Capital Markets also believes that Snowflake is one of the few software companies that directly benefit from the "AI readiness" trend, and the widespread adoption of CoCo may drive continued upward growth in product revenue. The team led by Matthew Hedberg even compared its potential post-earnings stock price performance to that of Cloudflare (NET.US), suggesting that Snowflake is likely to maintain its upward momentum after proving itself as a "top AI beneficiary." Historical data also provides some support for the bulls: over the past two years, Snowflake's EPS has exceeded market expectations 88% of the time, and revenue has exceeded expectations 100% of the time. However, Seeking Alpha analyst Agar Capital cautioned that at the current valuation level, "merely meeting the company's guidance is not enough," and the market needs to see more substantial good news. He specifically pointed out that if NRR can further rise, it would send a very positive signal regarding Snowflake's ability to increase customer spending through AI workloads. From a valuation perspective, based on projected earnings over the next 12 months, Snowflakes forward price-to-earnings ratio is as high as 121 times, indicating that the market has already priced in a substantial amount of future growth. The stock price has risen approximately 48% this year to $51, and the current stock price is close to the average target price set by Wall Street analysts. Among the 45 analysts covering Snowflake, 36 rated it as "strong buy," 3 as "moderate buy," 5 as "hold," and only 1 as "strong sell," resulting in an overall rating of "strong buy." Options Market: Pricing in a 10% shock, short-term sentiment is defensive The reaction of the options market to Snowflake's earnings report is also worth noting. Based on straddle options expiring on September 4 with a strike price of about $322.50, the market is pricing in an implied volatility of approximately 10.15%. This means that investors expect the stock price to potentially fall between approximately $289.24 and $354.60 after the earnings report. From the trading flow, short-term options activity before the earnings report was clearly skewed towards bearishness. In the most recent trading day, the volume of put options reached 4,197 contracts, while call options saw only 2,229 contracts traded, resulting in a put/call volume ratio of 1.88, indicating that some funds are buying downside protection before the earnings report. However, from the perspective of open interest, the overall structure appears more balanced: the ratio of puts to calls in open interest is 0.77, indicating that call options still dominate existing positions. In the options expiring on September 4, the maximum open interest for put options is concentrated at the $240 strike price, while the maximum open interest for call options is at the $375 strike price. Although these levels are far from the current stock price and cannot be viewed as direct price predictions, they provide important psychological reference points. Among all expiring contracts, the $160 puts and $340 calls hold the highest open interest, also worthy of attention.