Snowflake offers an outlook that fails to calm AI investors

(Bloomberg) — Snowflake Inc . provided a sales outlook that failed to reassure investors that the company would gain ground in the artificial intelligence software tools market. Shares fell in extended trading.

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Product revenue, which makes up the bulk of Snowflake’s business, will be $850 million to $855 million in the period ending in October, the company said in a statement Wednesday. Analysts on average had predicted $848 million, though some estimates topped $900 million, according to data compiled by Bloomberg. The company also raised its product sales estimate for the fiscal year to $3.36 billion from $3.3 billion.

Under the leadership of CEO Sridhar Ramaswamy, Snowflake launched products focused on generative AI and other new ways to analyze large data sets. The strategy is fueled in part by increased pressure from rivals including Databricks Inc. and cloud infrastructure providers such as Microsoft Corp. Snowflake provides software that helps customers find, organize and use vast amounts of information from a variety of sources.

Ramaswamy touted “great product delivery and traction in the early stages of our new AI products.”

Still, Snowflake is navigating a challenging environment between a recent CEO change, security breaches at its customers and a market shift to products outside its traditional wheelhouse, TD Cowen analyst Derrick Wood wrote ahead of the results.

In the fiscal second quarter, total revenue rose 29% to $868.8 million – falling below 30% for the first time in Snowflake’s history as a publicly traded company.

Shares fell about 7 percent in extended trading after closing at $135.06 in New York. The stock has fallen 32% this year as investors worried about Snowflake’s ability to catch up with AI-oriented tools.

Clients including AT&T Inc., Live Nation Entertainment Inc.’s Ticketmaster and LendingTree Inc., had their Snowflake accounts breached as part of a hacking campaign that began in May. Snowflake said its own systems were not breached and added features for customers to implement better security settings.

“Obviously we had some rough headlines in the quarter,” Ramaswamy said of the client breaches during a conference call after the results were released. “The problem wasn’t the snowflakes.”

Product revenue rose 30% to $829 million in the quarter, compared with the $813 million expected by analysts. Adjusted profit, excluding some items, was 18 cents per share, slightly above the average estimate of 16 cents per share.

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Snowflake now has 510 customers who spent more than $1 million in a 12-month period, up from 485 in the previous quarter. Remaining performance obligations — another key growth benchmark — were $5.2 billion in the period ended July 31, beating the average analyst estimate of about $5 billion.

The company has added about 1,000 workers in the past year, at a time when many peers were shedding employees or hiring selectively. Snowflake said it had 7,630 employees in the second quarter.

(Updates with additional context throughout.)

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