Snowflake shares surged nearly 37% Thursday following Wednesday's earnings report, marking the company's best trading day since its 2020 initial public offering, while Salesforce shares fell 0.8% despite both companies reporting quarterly results more than 20% above Wall Street forecasts. The divergence stemmed from Snowflake's stronger full-year product sales guidance of $5.84 billion and its announcement of a five-year $6 billion contract with Amazon Web Services for computing capacity. The AWS agreement addresses margin pressures in the software sector as companies shift toward AI products, which typically carry lower profit margins than traditional cloud services due to higher computing infrastructure costs.
Snowflake Stock Rises 37% Following Earnings Report
Snowflake and Salesforce both reported better-than-expected quarterly sales and profit numbers after the market close Wednesday, with results more than 20% higher than Wall Street forecasts according to FactSet. Shares of Salesforce fell 0.8% Thursday, while Snowflake rose nearly 37% — its best day since going public in 2020. Salesforce's $11.3 billion revenue outlook for next quarter fell short of analysts' estimates. Snowflake's full-year product sales guidance of $5.84 billion exceeded Wall Street expectations, citing expected continued growth of its Cortex Code product.
Snowflake Announces $6 Billion AWS Computing Contract
Snowflake announced a five-year contract to buy $6 billion in computing capacity from Amazon Web Services, giving the company access to lower-priced AI infrastructure. The deal enables Snowflake to preserve profit margin as more sales are driven by AI activity such as Cortex Code. AI products typically have lower margins than traditional cloud computing because of computing power costs.
CFO Explains Margin Preservation Strategy
Snowflake CFO Brian Robins explained the company's ability to maintain its 75% adjusted product profit margin through "lower bandwidth costs." Robins told an analyst, "I talked about the AWS contract, and so we're offsetting it there. So that's how we're able to do that." The approach provides a template for other software companies: create a fast-growing AI-related product while simultaneously committing to preserve high profit margins.
FAQ
Why did Snowflake stock rise 37% while Salesforce fell after both reported strong earnings?
Snowflake's full-year product sales guidance of $5.84 billion exceeded Wall Street expectations and the company announced a $6 billion five-year AWS contract for computing capacity. Salesforce's $11.3 billion revenue outlook for next quarter fell short of analysts' estimates, explaining the divergent market reactions despite both companies reporting quarterly results more than 20% above forecasts.
How does Snowflake's AWS contract help maintain profit margins?
The five-year $6 billion contract with Amazon Web Services gives Snowflake access to lower-priced AI infrastructure. CFO Brian Robins stated the company offsets margin pressures through "lower bandwidth costs" from the AWS contract, enabling Snowflake to maintain its 75% adjusted product profit margin even as AI products like Cortex Code drive more sales.
