Meet the AI Software Stock That’s Crushing Palantir (Hint: It’s Significantly Cheaper)

Snowflake reported fiscal Q2 revenue growth of 35% year over year to $1.55 billion and EPS growth of 77% to $0.62, beating the $0.45 consensus estimate; shares rose more than 16% after the Sept. 2 results. The company added 692 net new customers, lifted full-year product revenue guidance to $6.07 billion from $5.84 billion, and posted 126% net revenue retention as AI-product adoption increased. Remaining performance obligations rose 30% to $9 billion, supporting expectations for continued growth, while analysts project fiscal 2027 EPS of $2.22, up 77%.

Analysis

SNOW’s key investable question is whether AI feature adoption converts from broad account penetration into durable incremental consumption, rather than merely bundling existing warehouse workloads into new product labels. The improved expansion signal and raised outlook support a near-term upward earnings-revision cycle, but the backlog metric is not a revenue-equivalent measure: contract duration, consumption timing, and potential customer optimization remain the variables that determine whether FY28 estimates move materially. The post-results move likely narrows the valuation discount versus premium AI software, so upside over the next 1-3 months depends on further guidance raises rather than the initial beat alone.

Competitive dynamics favor platforms that control governed enterprise data, but SNOW remains exposed to hyperscaler bundling from MSFT Azure Fabric, GCP BigQuery and AWS-native analytics. A successful agent workload can increase data processing, governance and application-layer spend simultaneously; conversely, inference efficiency and customer cost controls could reduce consumption intensity even while AI-user counts rise. This makes product-revenue growth, large-customer expansion, and gross-margin trajectory more important than disclosed user-account adoption.

PLTR is the cleaner relative short if the market continues rewarding AI software demand indiscriminately: SNOW has a more credible route to multiple expansion if execution sustains, while PLTR requires substantially more perfect growth to defend its premium. Contrarian risk: SNOW’s lower sales multiple is not automatically cheap—its model has historically been more sensitive to consumption volatility, and a deceleration in net retention would quickly revive that discount. For the next earnings print, watch product-revenue guidance versus consensus and retention: a guide merely in line after the current rerating, or retention below roughly 125%, would falsify the near-term long thesis.

Key Decisions for Investors

• Initiate a 1-3 month relative-value position: long SNOW / short PLTR, sized beta-neutral. Target a 10-15% relative move as SNOW estimate revisions compound and PLTR’s valuation premium faces higher execution scrutiny; exit if SNOW’s next product-revenue guide is not raised or retention falls below ~125%.
• For directional exposure, buy SNOW only on a pullback of roughly 8-12% from the post-earnings level rather than chase the gap. Use a 6-9 month horizon; upside requires a second upward revision cycle, while downside risk is 15-20% if consumption growth normalizes and the multiple de-rates.
• Do not treat reported AI account adoption as a standalone catalyst. Add exposure only if upcoming disclosures show acceleration in large-customer spend and stable-to-improving gross margin, which would demonstrate monetization rather than free or low-price feature uptake.
• Monitor hyperscaler AI/data announcements and enterprise software budget commentary over the next quarter. Evidence of bundled substitutes winning governed-data workloads is a reason to reduce SNOW and avoid extrapolating current consumption momentum into FY28.