Snowflake Aug 20

Rating Company Date 20 August 2026 Buy Snowflake North America Reuters Bloomberg Rating Buy SNOW.N SNOW US Price target (USD) 350.00 United States Price at 19 Aug -week range 337.38 – 121.11 TMT Software Valuation & Risks

2Q Preview - Compounding CoCo Contribution Brad Zelnick Research Analyst Looking to F2Q earnings, we remain constructive on Snowflake equity while Bhavin Shah, CFA acknowledging expectations have climbed alongside the ~85% move higher in Research Analyst shares since the company posted exceptional F1Q results, and with the stock now trading at 16x FY28 revenue. Most of the excitement appears to be driven by CoCo, which is not only contributing incremental revenue itself, but more Daniel Knauff Research Associate importantly in our view accelerating the core business by compressing migration timelines and increasing new use-case velocity. Although AI Services are lower margin today, they are still gross profit and EBIT accretive as Snowflake is able to Yash Kejriwal charge for the value of the harnesses (CoCo & CoWork) beyond the underlying Research Associate cost of tokens, and then scale these Services with limited OpEx. We see further

opportunity to capture additional value/margin at the model serving and orchestration layers with the recent introduction of open models and dynamic routing in preview soon. Snowflake's right to win here vs. competing harnesses Key changes comes from its ability to offer model choice + governance + infusing the unique Price target (USD) 300 350 17% signal they get from customers interacting directly with the platform into the Source: Deutsche Bank product to improve performance and efficiency.

The result is a robust high-margin core business complimented by a still-small but rapidly growing AI Services portfolio, which, when paired with near-term COGS efficiencies and meaningful OpEx leverage developing at the current scale, sets up for a powerful combination of accelerating y/y revenue growth and operating margin expansion in FY27. We think this is largely appreciated by investors at this point, but believe the momentum still has a way to run here given the pipeline of data migrations and ability for developers to build faster/do more on the platform. The couple of other items we think could generate incremental optimism are: a clearer pathway to margins on AI services moving higher, and/or greater signs of traction for Snowflake CoWork – the more TAM-expansionary opportunity to democratize access to data intelligence for non-technical knowledge workers.

As for the quarter itself, we look for a solid 3-4% beat on Product revenue amid a favorable public cloud demand backdrop and new product momentum, which would represent record sequential revenue adds of >$125m q/q, and adjusting for last year's outsized non-recurring migration-related revenue (DBe ~$15) and the inorganic contribution from Observe this year (DBe ~1pt) we estimate implies a more like-for-like acceleration of ~2pts sequentially, to 35%+ y/y. Our sense is that some expectations may be modestly higher than this level, but we think

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calling for a repeat of last quarter's 5.5% outperformance is probably an unfair bar given the company has never posted back-to-back 5%+ quarterly beats as consumption trends from the prior quarter and first few weeks of the current quarter are folded into guidance. On a solid 3-4% beat we also see opportunity for a few points of NGOM outperformance, with benefits from the new AWS contract signed in May, flat COGS headcount and growing OpEx leverage. On a FY27 basis, we would look for revenue guidance to at least flow through quarterly outperformance with unchanged or better NGOM. We reiterate our Buy rating and raise our target price to $350 from $300 to reflect…