Snowflake is On a Tear

Snowflake Inc. (SNOW) inventory spiked after the corporate reported robust income development on August 27 for the Q2 FY26 interval, ending July 27. The inventory is up +19% up to now two days.

SNOW closed at $238.66, up from $200.39 on Aug. 27 earlier than the outcomes have been launched. My goal value is now $337.47, or +41.4% greater. This text will present why.

Administration says income can be 27% greater YoY, together with a 25% adjusted free money movement (FCF) margin. What’s key right here is that administration forecasted its FCF margin for the yr, a projection that nearly no firm does.

That reveals robust confidence in its recurring free money movement (FCF).

It additionally permits us to undertaking a goal value for SNOW inventory that’s over 44% greater, even after its current run-up. Here is how that works out.

Snowflake, a Bozeman, Montana-based firm, offers information evaluation and information cloud administration merchandise. It has 4 product traces: information engineering, analytics, AI (synthetic intelligence), and purposes/collaboration.

If your corporation wants to research an enormous quantity of information queries on datasets and LLM (massive language fashions) or something near that, Snowflake can in all probability assist. Primarily, its development is being fueled by a convergence of information cloud development and the necessity for software program to research the information, together with AI information.

For instance, final quarter Snowflake’s income was up +31.8% year-over-year (Y/Y) to $1.145 billion. Furthermore, administration tasks its FY 2026 income (ending Jan. 31, 2026), will rise at the very least 27% (i.e., product income, not together with skilled providers).

Primarily based on this, analysts now estimate that its FY 2026 income can be $4.61 billion. Subsequent yr, they forecast $5.69 billion, or +23.4% extra.

However right here is the important thing level. Administration now estimates its FCF margin can be 25% for FY 2026. (Once more, virtually no firm ever tasks its FCF margin). This may be seen on web page 25 of its Q2 deck (see under):

In consequence, we will estimate that its FCF can be over 22% greater than final yr:

$4.61 billion income FY26 x 0.25 = $1.1525 billion FCF vs. $941.5 million final FY (i.e., +22.4%)

Because of this its robust FCF development will proceed. However even when we use the $4.4 billion product income determine from web page 25, the FCF estimate is at the very least $1.1 billion. So, on common, we will anticipate at the very least a $1.1263 billion FCF determine for FY 26, or +20% greater than final yr.