Snowflake (SNOW) Stock: Falls 1.52% Despite Strong Free Cash Flow Guidance

TLDRs;

• Snowflake stock fell 1.52% despite reaffirming strong free cash flow guidance that could justify a significantly higher valuation.
• Q3 results showed solid revenue growth and rising cash flow, though full-year FCF margins may miss the 25% target.
• Analysts remain bullish, with price targets near $280–$300, calling the December pullback a potential buying opportunity.
• Margin concerns and cautious guidance pressured shares, but long-term AI and data-cloud demand still support Snowflake’s growth trajectory.

Snowflake (NYSE: SNOW) shares dipped 1.52% on Monday, extending a multi-day pullback that began after the company reported its fiscal third-quarter results on December 3. The decline comes despite Snowflake reaffirming one of its most closely watched performance metrics: its full-year adjusted free cash flow (FCF) margin target of 25%.

Analysts say that target alone could justify a price re-rating of more than 20% from current levels, but the market is showing little patience as questions linger over margins, spending, and the impact of new AI investments.

Snowflake Inc., SNOW

SNOW traded at $226.82, well below the $265 peak reached just before earnings. While Snowflake posted steady revenue growth, rising profitability, and a surge in adjusted FCF, the stock has struggled to find momentum as investors react to cautious forward guidance and a sharp drop in expected operating margins for Q4.

FCF Strength Highlights Momentum

Snowflake’s third-quarter results underscored its rising cash-generation capabilities, an area investor sentiment often hinges on for high-growth software companies. The company delivered 29% year-over-year revenue growth, while adjusted free cash flow surged 57%, reaching $833.5 million over the trailing 12 months.

That performance translated into a 19% trailing FCF margin, strong, but still well short of management’s 25% full-year target. Analysts say the gap may be narrowed in the fourth quarter, a period when Snowflake historically posts its strongest profitability due to large subscription renewals. Last year, Q4 FCF margins reached 43%, and a similar outcome could elevate Snowflake’s full-year numbers toward management’s goal.

Still, based on consensus Q4 revenue estimates of $1.26 billion, analysts estimate the company may finish the fiscal year at around 20% FCF margin, not 25%. That uncertainty continues to pressure investor confidence.

Analysts Still See Major Upside

Despite Snowflake’s recent stock decline, Wall Street sentiment remains firmly optimistic. Most analyst price targets are concentrated in the upper-$200 range, and several major institutions issued upgrades or reaffirmed their positive outlooks throughout December.

Deutsche Bank lifted its target to $275, while Morgan Stanley pushed its projection higher to $299. Both Bank of America and Oppenheimer also maintained their bullish stances during the month. Taken together, the broader consensus across research firms places Snowflake’s fair value in the $283 to $285 range.

Many analysts see the December pullback not as a red flag, but as a favorable entry point. MarketBeat analysts, in particular, argue that Snowflake is well positioned to benefit from the accelerating shift toward AI-driven data infrastructure, an enterprise megatrend expected to gain even more momentum through 2026.

They point to Snowflake’s high customer retention, strong remaining performance obligations, and the continued expansion of its large-customer base as reinforcing elements of a long-term growth narrative that appears intact and strengthening.

Guidance Sparks Investor Caution

Snowflake beat expectations on revenue and earnings, but its in-line revenue forecast and a surprising dip in expected operating margins overshadowed the positive results. Management projected a 7% operating margin for Q4, below the 9% delivered in Q3. That dip, attributed partly to increased AI-related investments, triggered concerns about near-term profitability.

Even so, leadership pushed back against the negative reaction. CEO Sridhar Ramaswamy told analysts that the company sees ample room to improve operational efficiency while expanding the business at scale. The company insists that new investments are not eroding long-term margin potential but rather fueling new product and AI growth opportunities.

Investors Debate the Road Ahead

The debate now centers on whether Snowflake can hit its ambitious FCF targets and whether near-term margin compression is a temporary speed bump or a sign of deeper cost pressures.

While analysts overwhelmingly expect Snowflake to outperform in 2026, markets appear unconvinced for now.Snowflake remains a top performer in 2025, up more than 50% year-to-date even after the latest decline.

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