Snowflake’s CFO just said 16 words that should be music to every shareholder’s ears

If you’re an informed investor, you’ve probably read the quarterly reports from the companies you’ve invested in. If you’re looking for even deeper insight, you might want to listen to management’s comments on quarterly earnings calls. But if you have extra time, listening to presentations at investor conferences can give you even more insight.

On September 12, the data company Snowflake (NYSE: SNOW) made a presentation at Goldman Sachs Communacopia + Technology Conference. In his remarks, CFO Mike Scarpelli said 16 words that are extremely important to investors. I’m really starting to rethink the stock as a potential investment.

Snowflake makes a big change

The trend of artificial intelligence (AI) is undeniable, and Snowflake is caught up in it. For proof, look at his press releases. Its report for the second quarter of fiscal 2022 began simply by calling it “The Data Cloud Company.” But in its fiscal Q2 2025 report, it called itself “The AI ​​Data Cloud Company.”

From my perspective, almost all tech companies have been trying to convince investors that they are leaders in the AI ​​space for years. But in reality, most are investing aggressively in AI, desperately trying to keep up. I would put Snowflake in this group. Indeed, the company bought graphics processing units (GPUs) to have what it needs to power AI workloads.

The problem is that GPUs are expensive, and it hurt Snowflake’s profit margins — more on that in a moment. Management said investment in AI is ongoing. But Scarpelli’s tone sounded much different during his recent conference presentation.

While talking about the expensive prices of GPUs, Scarpelli surprisingly said, “I won’t buy GPUs again until I see the revenue to support them.” Those 16 words were both shocking and, for me, a rare breath of fresh air.

Why it matters

During my career as an investor, I have seen richly valued stocks at over 100x sales and seen companies with enormous market caps of over $100 billion. But we’ve rarely seen both, as was the case with Snowflake’s stock shortly after it went public.

Investors were willing to make Snowflake’s stock one of the most expensive we’ve ever seen because it had a phenomenal growth rate and enviable profit margins. The general consensus was that the business would grow at such an impressive rate that it would be worth much more than $100 billion before long.

AI was also believed to be a catalyst for Snowflake. After all, it’s a data company, and AI doesn’t work without data. But AI hasn’t been the catalyst many expected. The company’s growth rate is still strong, but still has been steadily declining. Investments in AI infrastructure also prompted management to lower its profit outlook.

The story continues

To put specific numbers here, Snowflake started fiscal 2025 expecting 22% growth in product revenue, as well as an operating margin of 6% and an adjusted free cash flow margin of 29%. But starting in Q2, it expects 26% growth, 3% operating margin and 26% free cash flow margin.

Snowflake’s revenue outlook is on the rise, yes. But don’t be too quick to attribute this to AI. As Scarpelli said of AI: “The reality is that very few are mass-using it today.” Therefore, it appears that AI is not increase in income. But AI is increasing spending because the company is buying GPUs — which may be why Warren Buffett’s company recently sold Snowflake shares.

In general, it can be dangerous to invest in a company with rising expenses and no revenue growth. That’s why I find Scarpelli’s comments refreshing. He stops buying GPUs unless it actually starts contributing to the growth of the business.

Is it time to rethink our Snowflake stock?

When companies indiscriminately spend money on the latest “big thing,” it can be money wasted forever. But when companies look at spending and demand to see a financial benefit, good things can happen for shareholders. Meta platforms is a good recent example. After calling 2023 the “year of efficiency,” the company’s profits increased without sacrificing growth.

For perspective, Meta Platforms stock has quadrupled since the start of 2023. In short, as it has focused on justifying its spending, its profits have skyrocketed, lifting the stock to new highs.

Could something similar be in the works for Snowflake stock? It’s too early to tell. But the company’s CFO demands to see a return on investment when it comes to AI. This is the right mindset and could lead to better efficiency for Snowflake.

At 11x sales, Snowflake stock has never been cheaper. And if it continues to grow at its current rate while keeping spending under control, I think better days could be ahead.

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Snowflake. The Motley Fool has a disclosure policy.

Snowflake’s CFO Just Said 16 Words That Should Be Music To Every Shareholder’s Ears was originally published by The Motley Fool