The valuation reset to 9.8x EV/NTM revenue means the bear case now requires a second demand leg down. The next earnings report becomes a binary event with upside skew.
Alpha Score of 26 reflects poor overall profile with weak momentum, poor value, weak quality. Based on 3 of 4 signals – score is capped at 90 until remaining data ingests.
The valuation argument that kept investors away from Snowflake for two years has stopped working. The stock’s compression to a 9.8x enterprise value to next-twelve-month revenue multiple means the bear case is no longer about paying too much for growth. It is now about betting that demand enters a second, steeper leg down. That is a harder bet to make, and it creates a risk event for anyone positioned for another 30 percent leg lower.
This shift is not about the company becoming an AI winner overnight. It is about the mechanical relationship between a reset multiple and forward revenue expectations. When a stock’s valuation multiples stop pricing for disaster, the distribution of outcomes tilts. The next earnings report becomes a binary event with an asymmetric payoff profile that favors the upside, according to the Seeking Alpha analyst who laid out the thesis.
The simple read on Snowflake is that the stock got cheaper. The better read is that the multiple no longer embeds expectations of a demand shock. At 9.8x EV to next-twelve-month revenue, the market is not paying for hyper-growth. It is pricing a scenario where revenue growth stalls near zero, margins stay suppressed, and the consumption model never re-accelerates. That is meaningfully different from the 30x and 40x multiples that defined the stock during its peak.
A high multiple is a vulnerability because it discounts a long stream of aggressive assumptions. Any miss becomes a valuation problem. A low multiple, however, discounts a stream of mediocre assumptions. If those assumptions prove too pessimistic, the repricing happens fast. The 9.8x multiple sets a low bar. The bearish thesis that was easy to defend at 15x or 20x sales now requires the actual numbers to be worse than the depressed expectations already embedded in the stock.
For six quarters, the trade was straightforward. Revenue growth decelerated, multiples contracted, and the stock fell 60 percent from its highs. That mechanical trade is over. The multiple is no longer a source of downside torque. Further declines must come from fundamental deterioration beyond what the current multiple implies. That is a transition from a valuation-driven bear market to a fundamentals-driven short bet. Fundamentals-driven shorts carry higher risk because they must get both the direction and the timing right around discrete reporting events.
Snowflake’s revenue model is consumption-based. Customers do not sign up for fixed software licenses. They load data onto the platform and pay for the compute resources they use. During 2022 and 2023, companies slowed their consumption growth. They optimized workloads, cleaned up unused queries, and paused non-essential data projects. That optimization cycle crushed Snowflake’s revenue growth rate.
Several signs now point to that cycle ending. Consumption trends are showing stabilization. The optimization headwind that dragged on reported revenue for five quarters is easing. When optimization ends in a consumption model, the revenue recovery shows up in the reported numbers faster than a typical enterprise software turnaround, because the contracts are already in place. The capacity is provisioned. The only thing missing is usage, and usage rises when economic caution fades.
This is the mechanism most bearish commentary misses. A simple comparison of past revenue growth rates to current numbers looks alarming. A 60 percent grower that decelerates to 30 percent looks like a broken story. A consumption-based business that stabilizes its usage volume after an optimization cycle, however, is not broken. It is building a base for the next expansion. When usage volumes re-accelerate, the incremental margin on that consumption is high, which means the operating leverage shows up alongside the revenue line.
Snowflake’s remaining performance obligations, the contracted future revenue not yet recognized, continued to grow during the optimization period. That created a drag coefficient between bookings growth and reported revenue growth. As usage normalizes, that gap closes. Reported revenue catches up to the underlying contract momentum. When that catch-up trade begins, it creates positive surprises against consensus estimates that are still modeled for a sluggish recovery.
The practical risk for a short position in SNOW stock has changed structurally. During the multiple compression phase, a short could lose money only if the stock rallied into a rich multiple, which required a sudden and implausible growth re-acceleration. Now the stock sits at a multiple that leaves room for a rally even if growth merely stops getting worse.
The short thesis required two conditions: a high multiple that exaggerated downside on any revenue miss, and a revenue deceleration trend that provided a steady stream of negative catalysts. The first condition is gone. The multiple has already compressed to levels where a flat revenue quarter is unlikely to trigger a sharp further derating. The second condition is weakening, with consumption stabilization suggesting the worst of the deceleration is behind.
A short seller now must contend with a stock that has already absorbed the rate of change shock. The risk is no longer a gradual grind lower driven by multiple compression. It is a violent squeeze on any positive revenue signal, because the base short interest creates a mechanical overhang that can flip to a tailwind in days.
The next earnings report is the catalyst that crystallizes the risk. If Snowflake reports revenue above consensus and guidance that implies a return to sequential growth acceleration, the stock will reprice rapidly because the starting multiple has no cushion of embedded pessimism left to absorb good news. The setup mirrors other enterprise software names that bottomed when the multiple stopped being the story and revenue stabilization became the story.
AlphaScala’s proprietary quantitative model rates SNOW a Weak 18/100. That score reflects trailing revenue deceleration and still-elevated cash burn. It is a reminder that fundamentals remain challenged and the company has not yet delivered the sustained re-acceleration that would justify a durable re-rating. The stabilization thesis must convert into actual reported growth before the risk/reward shift translates from a trading event into a structural trend.
The bullish risk scenario, which is a risk to those holding short positions, requires confirmation on three fronts. The Seeking Alpha analyst outlines these as the markers that would validate the asymmetric payoff:
If these three signals appear together, the multiple has room to expand back toward the mid-teens simply because the market will begin pricing a return to 30 percent sustainable growth rather than a plateau. The stock has historically traded at multiples far above the current level when growth expectations were even moderately positive.
A weaker setup would emerge if the macro environment forces a second round of IT budget cuts that restart the optimization cycle. A new consumption slowdown would mean the stabilization narrative was premature. Snowflake’s large enterprise customer base is concentrated in sectors that are sensitive to interest rates and capital spending. A genuine recession call, accompanied by a drop in cloud spending intentions, would remove the catalyst path.
A guidance cut that resets fiscal year revenue growth expectations below the stabilized rate would also weaken the asymmetric payoff. At that point the 9.8x multiple would no longer look like a floor. It would look like a discount for deteriorating fundamentals that have further to run. The risk event would shift back to the downside.
For now, the burden of proof has moved from the buyers to the sellers. The stock no longer needs to prove that it deserves a premium. It merely needs to prove that demand is not falling off a cliff. That lower standard is what makes the current setup a genuine risk for anyone short Snowflake and a consideration for those who had written off the name purely on valuation grounds.
Prepared with AlphaScala research tooling and grounded in primary market data: live prices, fundamentals, SEC filings, hedge-fund holdings, and insider activity. Each story is checked against AlphaScala publishing rules before release. Educational coverage, not personalized advice.