Updates: SNOW 3Q25 - Pioneering Unstructured Data Pipelines With Datavolo (Pt.1)

Summary

• Strategic acquisitions like Night Shift Development and Datavolo bolster Snowflake's position in GenAI and unstructured data processing, enhancing its competitive edge.
• Datavolo enables Snowflake to compete effectively with Databricks and other AI infrastructure players while carving out a niche in unstructured data transformation and GenAI application development.
• Datavolo’s open-core model, early mover advantage, and hybrid search capabilities enhance Snowflake Cortex’s appeal as a user-friendly PaaS for AI developers.
• Monitoring NiFi and Datavolo's usage metrics will be key indicators of Snowflake's progress and potential market leadership in the AI ecosystem.

Not much has fundamentally changed about Snowflake (SNOW) since our last update in September 2024. However, the share price and investors' perceptions have swung dramatically following the 3Q25 earnings report.

In our view, SNOW's business remains solid but not extraordinary — it’s good, yet not deserving of extraordinarily high multiples. It’s also not in decline, plagued by poor leadership, eroding its moat, or producing inferior products. Recent quarters have seen investor sentiment on SNOW turn excessively negative, driven by fear, uncertainty, and doubt (FUD) that we believe has been largely irrational:

• Claims that SNOW will lose its leadership in cloud data warehousing to competitors like Databricks.
• Assertions that SNOW will fail in its Cortex AI PaaS & SaaS initiatives, despite no credible evidence or performance benchmarks suggesting SNOW has lost its perf/$ or UX leadership in CDW.
• Concerns that SNOW’s proprietary data format is no longer a moat and that 11% of revenue will be cannibalized by Iceberg adoption. This overlooks Iceberg’s potential to increase SNOW’s revenue opportunities, as most customers are likely to remain within SNOW's ecosystem.
• Fear of major cybersecurity and trust issues due to customer data breaches, despite these being configuration errors by customers, not failures of SNOW’s infrastructure.
• Speculation that Frank Slootman retired as CEO because of limited growth prospects or a sinking ship, even as the new CEO has accelerated product rollouts, particularly in AI.
• Skepticism that SNOW’s new products, including Cortex, will materially impact topline growth.

Critics have ironically suggested that we’ve blindly aligned with management’s overly optimistic narrative. However, it’s essential to note that our agreement with management stems not from blind faith but from independent analysis and checks that build our conviction. Claims that we act on behalf of SNOW’s IR are unfounded. While we do appreciate SNOW’s management and overall strategy — which explains its previous elite valuation and strong brand among analysts — we’ve also been cautious. For instance, we were never fully bought into management’s FY29 $10bn ARR guidance and avoided the name until its valuation aligned with our base case and the risk-reward profile became favorable.

It’s interesting to compare SNOW’s price action in 2024 to that of PANW. Both are well-run companies with strong vision and execution, highly regarded by analysts at the start of the year. Yet, their share price trajectories have been markedly different. PANW experienced a sharp gap down, followed by a gradual recovery, as it deliberately reset investor expectations. SNOW, on the other hand, faced a gradual price decline followed by a sharp rebound. While PANW managed investor optimism by sandbagging guidance, SNOW’s flawless execution in recent quarters seemed to breed impatience when they pivoted, leading to discomfort with glitches and uncertainties.

This divergence underscores the market’s contrasting responses to similar fundamentals, shaped by the narratives companies and investors construct.

Night Shift Development

In September 2024, SNOW acquired Night Shift Development, a company that developed ClearQuery, a no-code data analytics software. ClearQuery enables non-technical users to leverage data analytics and generate value without extensive training. Notably, ClearQuery’s goal is to build a data analytics tool powered by human language rather than LLMs.

ClearQuery has been in this game for a while. Our competitors tend to use external resources like ChatGPT to attempt to enable democratization, but that comes with security risks, much higher variable costs, and unpredictable responses. ClearQuery's approach enables flexibility, security, and accuracy all within a simple to use interface.

ClearQuery’s development philosophy prioritizes years of meticulous human effort in building a user-friendly and intuitive UI, catering not only to technical users but to everyone. This approach aligns closely with SNOW’s overarching philosophy of simplifying the data stack to make it more accessible and valuable for customers.