Snowflake surges 24% as AI demand lifts software sector

A 24% premarket jump in Snowflake shares after the cloud data provider raised its fiscal 2027 product revenue outlook to $6.07 billion has revived confidence in software valuations, with AI demand now feeding core platform consumption rather than a separate product line. The results, posted Wednesday after the close, triggered a sympathy rally across enterprise software names that had been pressured by fears that AI agents would displace traditional vendors.

"AI continues to compound our advantages, creating a flywheel effect across the business," Chief Executive Officer Sridhar Ramaswamy said.

Snowflake reported second-quarter revenue of $1.55 billion, up 35% from a year earlier, with product revenue of $1.49 billion climbing 37%. Adjusted earnings of 62 cents a share beat the 45-cent Wall Street consensus, and remaining performance obligations reached $9 billion, up 30%. AI offerings accounted for roughly half of the growth acceleration, Ramaswamy said, with the Cortex Code assistant topping 9,100 accounts after adding more than 2,000 customers during the quarter.

The read-through rippled across software peers. Datadog, which had slid about 22% over the past month on reduced usage from a major AI customer, rose 5.7% in premarket trading, while CrowdStrike's own earnings added to the sector's comeback wave. The moves came even as the S&P 500 was little changed and the Nasdaq traded modestly lower, pointing to sector-specific dynamics rather than broad index strength.

AI Demand Moves Into the Core Platform

The results mark a shift in how investors value AI exposure in software. Snowflake's AI offerings are driving consumption on its existing data platform, expanding its user base and boosting workloads, rather than merely creating a new product opportunity. That counters the narrative that software vendors are vulnerable to displacement by AI agents that could automate the tasks their products perform.

Hewlett Packard Enterprise reported a similar dynamic, though its shares did not rally after the print. Networking revenue of $2.9 billion in the third quarter of fiscal 2026 rose 74.9% from a year earlier, far outpacing overall revenue growth of 34%, as demand for AI-native and "self-driving" networking accelerated. Cloud and AI revenue reached $9 billion, up 25%, while server revenue rose 35% and orders increased 36%.

"Orders were ahead of revenue, demonstrating the differentiation of our self-driving networks," President and Chief Executive Officer Antonio Neri said on the earnings call. Data center networking revenue more than doubled in the quarter, routing revenue jumped 270% and security grew 76%, helped by the completed Juniper Networks acquisition.

Valuation Premiums Come Back Into Focus

Snowflake shares have outperformed the broader market this year, rising 39% through Wednesday versus a 12% gain for the S&P 500. The stock trades at roughly 15 times forward revenue, compared with 7.4 times for the iShares Expanded Tech-Software Sector ETF, and at 121.8 times forward earnings, well above Datadog's 72.7 times and MongoDB's 52.1 times.

Jefferies analysts said the premium valuation remains supported by Snowflake's position as a leading enterprise data cloud provider, with AI driving new workloads and boosting consumption. At least 22 brokerages raised their price objectives after the results, with Wells Fargo issuing a Street-high target of $525, according to data compiled by LSEG.

"There was some nervousness around whether investor expectations were getting too high into the print. But we can see the positive sentiment gains continuing," Barclays analysts wrote.

The question for investors is whether the sector's renewed confidence holds beyond the immediate earnings reaction. Snowflake's results show AI spending is translating into durable demand for data infrastructure, while HPE's order book points to networking capacity being built ahead of an expected shift toward AI inference workloads. If that demand persists through the next reporting cycle, the software rally that began with Snowflake's print could have further to run.

This article is for informational purposes only and does not constitute investment advice.