Snowflake (SNOW) Q2 2026: Azure Growth Hits 40%, AI Adoption Drives Customer Expansion
Snowflake delivered accelerating product revenue growth and raised full-year guidance as AI adoption and cloud migration unlocked new enterprise workloads. The company’s core analytics business remains the foundation, but rapid product innovation and deepening partnerships—especially with Microsoft Azure—are now driving incremental demand. Investors should track how Snowflake’s AI-centric platform expansion and go-to-market investments convert into durable, high-value customer relationships in the face of intensifying competition.
Summary
- AI Integration Expands Customer Value: Nearly half of new customer wins cited AI as a core driver for adopting Snowflake’s platform.
- Azure Partnership Accelerates: Azure-based workloads grew 40%, outpacing other clouds and signaling a shift in cloud provider dynamics.
- Sales Force Investment Signals Long-Term Ambition: Record hiring in sales and marketing positions Snowflake to capture more enterprise wallet share.
Performance Analysis
Snowflake’s Q2 saw a marked acceleration in product revenue growth, supported by both expansion in legacy analytics workloads and meaningful traction in new AI-driven use cases. The company added 533 net new customers, including 15 Global 2000 accounts, and saw a record 50 customers cross the $1 million annual spend threshold, bringing the total to 654. Notably, remaining performance obligations (RPO) rose to $6.9 billion, reflecting a robust pipeline and improving visibility into future consumption.
Operating leverage improved as non-GAAP operating margin reached 11%, reflecting disciplined expense management even as headcount expanded. Net revenue retention rebounded to 125%, indicating that existing customers are increasing their spend, often by migrating new workloads or adopting incremental AI and data integration features. The company’s consumption-based model, in which revenue is recognized as customers use the platform, continues to benefit from this multi-pronged usage expansion.
- Customer Mix Shifts Upmarket: Global 2000 enterprises now represent a growing share of the million-dollar cohort, with roughly half of these large accounts doubling down on Snowflake’s platform.
- Professional Services Surge: A one-off milestone with a large customer drove a 20% sequential ramp in professional services, but the majority of services work is still handled by partners, not Snowflake directly.
- AI Product Penetration Deepens: Over 6,100 accounts are now using Snowflake’s AI features weekly, with 25% of deployed use cases involving AI, up from prior quarters.
Overall, the quarter demonstrates both the resilience of the core analytics business and the increasing contribution from AI and new data workloads. The strong new customer adds, record enterprise expansion, and margin improvement all point to significant operating momentum heading into the second half.
Executive Commentary
"Our core business remains very strong, and we continue to deliver product innovation to market at a rapid pace while strengthening our go-to-market motion for growth. We are executing with intensity and alignment and continue to see an enormous opportunity ahead."
Sridhar Ramaswamy, Chief Executive Officer
"Product revenue benefited from strength in our core business. In Q2, new features across all four product categories outperformed our expectations. With net new customer ads in the quarter up 21% year-over-year, it is clear that our new customer acquisition motion is yielding positive results."
Mike Scarpelli, Chief Financial Officer
Strategic Positioning
1. AI and Platform Expansion
AI is now a primary catalyst for new customer adoption, with nearly 50% of new logos citing AI as a core reason for choosing Snowflake. The company’s rapid rollout of 250 new features in the first half, including Snowflake Intelligence (natural language analytics) and Cortex AI SQL (native AI in SQL), is accelerating the integration of AI into enterprise data workflows. This broadens Snowflake’s reach from analytics into operational and agentic AI use cases.
2. Cloud Ecosystem Leverage
Azure workloads grew 40% year-over-year, outpacing AWS and reflecting the success of Snowflake’s deepening partnership with Microsoft. Joint go-to-market alignment and tighter product integration (with Office Copilot and Power BI) are unlocking new enterprise opportunities, especially in EMEA. While AWS remains the largest base, Azure is gaining share and could become an increasingly important growth lever.
3. Go-to-Market and Sales Force Expansion
Snowflake ramped up sales and marketing hiring, adding more heads in the first six months of the year than in the prior two years combined. This investment is designed to capture rising demand for AI and data modernization, especially among Global 2000 accounts. The sales model is shifting to value-based selling, emphasizing business outcomes over cost, and leveraging specialist teams to drive AI adoption at scale.
4. Data Integration and Developer Ecosystem
Snowflake’s acquisition of DataVolo and launch of OpenFlow extend its platform into the $17 billion data integration market, enabling seamless ingestion of structured and unstructured data. The introduction of Snowflake Postgres and support for Spark workloads further positions Snowflake as a developer-friendly destination for both OLTP (transactional) and OLAP (analytical) workloads, lowering barriers for migration and expanding the total addressable market.
Key Considerations
Snowflake’s Q2 results reflect a business in transition from pure-play analytics to a broader AI-powered data platform. Investors should evaluate the sustainability and profitability of this shift as product innovation, cloud partnerships, and go-to-market expansion converge.
Key Considerations:
- AI-Driven Consumption Growth: The accelerated adoption of AI features is driving incremental workloads and consumption, but long-term monetization depends on converting experimentation into enterprise-wide deployments.
- Cloud Provider Mix Evolution: Azure’s rapid growth could shift the competitive landscape and influence pricing, incentives, and cross-sell opportunities with Microsoft’s enterprise portfolio.
- Sales Productivity Ramp: The record hiring in sales and marketing must translate into higher quota attainment and efficient customer acquisition, especially as the company targets larger, more complex accounts.
- Migration Pipeline Visibility: Continued migration of on-prem and first-generation cloud workloads is a key driver of near-term growth, but investors should watch for normalization after large migrations are completed.
Risks
Competition from hyperscalers and specialized AI data platforms remains intense, with Microsoft, Databricks, and Palantir all vying for enterprise data budgets. The pace of customer migration and AI adoption could slow if macro conditions tighten or if new features fail to deliver differentiated value. Additionally, the large sales force expansion carries execution risk if productivity does not scale as anticipated.
Forward Outlook
For Q3, Snowflake guided to:
- Product revenue of $1.125 to $1.13 billion (25–26% YoY growth)
- Non-GAAP operating margin of 9%
For full-year 2026, management raised guidance:
- Product revenue of $4.395 billion (27% YoY growth)
- Non-GAAP product gross margin of 75%
- Non-GAAP operating margin of 9%
- Non-GAAP adjusted free cash flow margin of 25%
Management highlighted several factors that support the outlook:
- Strong contracted billings and renewal base
- Robust pipeline of large deals and new product features driving incremental consumption
Takeaways
Snowflake’s Q2 demonstrates that its AI-centric platform expansion and deepening cloud partnerships are translating into tangible revenue acceleration and improved operating leverage. The company’s ability to convert rapid product innovation and sales force investment into sustainable, high-margin growth will be the key watchpoint for investors.
- AI and Migration Drive Upside: Both legacy analytics and new AI workloads contributed to the quarter’s outperformance, with large customer migrations providing a near-term lift.
- Sales and Cloud Partnerships Multiply Opportunity: Record hiring and tighter Azure integration are expanding Snowflake’s reach, but execution on these fronts must remain disciplined.
- Future Watchpoints: Investors should monitor the pace of AI adoption, sales productivity, and competitive responses from hyperscalers as Snowflake seeks to sustain its growth trajectory.
Conclusion
Snowflake’s Q2 2026 results highlight a business at the intersection of cloud data, AI, and enterprise modernization. The company’s momentum in both core and emerging workloads, combined with operational discipline, positions it well for continued growth—but sustained execution and differentiation will be critical as the competitive landscape evolves.
Industry Read-Through
Snowflake’s results underscore the accelerating enterprise shift toward AI-powered data platforms, with cloud migration and open data standards gaining traction. The success of Snowflake’s Azure partnership signals that multi-cloud alignment and deep integration with hyperscalers will be increasingly important for data infrastructure vendors. The rapid adoption of native AI features and the move to unify analytics, data engineering, and operational AI within a single platform are likely to become table stakes across the industry. Competitors in data warehousing, integration, and AI-enablement must respond with innovation, ecosystem partnerships, and a focus on ease of adoption to remain relevant in this evolving market.