Snowflake (NYSE: SNOW) saw its shares surge more than 20% in after-hours trading Wednesday following the release of its second-quarter fiscal results, as the company raised its full-year product revenue guidance well above Wall Street expectations and highlighted rapid adoption of its AI-powered coding assistant, CoCo.

For the quarter ending in July, product revenue climbed 37% year-over-year to $1.49 billion, beating the consensus estimate of $1.42 billion. Total revenue reached $1.55 billion, up 35% from a year ago. However, remaining performance obligations (RPO) — a key measure of future contracted revenue — came in at $9 billion, slightly below the anticipated $9.37 billion. The company posted a non-GAAP operating margin of 15.3%, with operating income of $237 million.

The AI product suite proved to be the quarter's standout performer. Snowflake revealed that its AI assistant CoCo gained more than 2,000 new enterprise customer accounts during the quarter, bringing cumulative usage to 9,100 accounts. Management now projects full-year product revenue of approximately $6.07 billion for fiscal 2027, an increase from the previous forecast issued in May and well exceeding the analyst consensus of $5.86 billion.

Where growth is coming from

During the earnings call, CEO Sridhar Ramaswamy attributed the acceleration to three mutually reinforcing dynamics: AI is driving new workloads onto the platform, native AI products like CoWork and CoCo are being adopted quickly, and AI adoption is lifting overall platform consumption. "Customers using AI on Snowflake consume more on the data platform, creating a structural multiplier for our business," he said.

The company added 692 net new customers during the quarter, including 14 Global 2000 enterprises, representing a 32% year-over-year increase in net adds. Snowflake now serves more than 41% of the Global 2000, with 829 such companies as customers. Notably, 65 customers now generate over $10 million in product revenue over the trailing twelve months.

AI adoption fueling consumption

CFO Brian Robins confirmed that AI contributed roughly half of the growth acceleration. "AI products — not just CoCo and CoWork, but also AI functions, AI Gateway, and others — contributed about half the acceleration," he said. Accounts adopting CoCo demonstrate higher consumption on the core platform, reinforcing the "flywheel effect" executives describe.

CoCo's user base expanded to over 9,100 accounts with more than 2,000 net new additions in the quarter alone, while CoWork grew to 5,800 accounts, up nearly 11% sequentially. The company also highlighted productivity gains from internal AI use, including a marketing department that cut external agency costs by $400,000 annually and reduced content production time from roughly 24 hours to just 2 hours.

Financial outlook and guidance

For the third quarter, Snowflake expects product revenue of $1.588 billion to $1.593 billion, representing 37% to 38% year-over-year growth. The company raised its full-year non-GAAP operating margin guidance to 14.5%, up from the previous 13.5%, while maintaining a non-GAAP adjusted free cash flow margin outlook of 23%. Product gross margin guidance now stands at 74%, reflecting a higher mix of fast-growing AI workloads with lower contribution margins.

Management reaffirmed its path to GAAP profitability by the fourth quarter of fiscal 2028, adding just 334 net employees year-to-date (including 173 from the Observe acquisition) versus 935 in the same period last year. RPO grew 30% year-over-year to $9 billion, with roughly 54% expected to convert to revenue within the next twelve months.

Model neutrality as a competitive advantage

When questioned about model switching and gross margin implications, executives emphasized that model neutrality is a strategic differentiator. "Many customers said they made a big commitment to one model company and discovered they should have chosen differently, but their commitment to Snowflake gives them flexibility," said Product EVP Christian Kleinerman. The company continues developing its Arctic family of models for specific constrained tasks while supporting a mix of frontier, open-source, and fine-tuned models.

The company also introduced Cortex AI Gateway for dynamic model routing based on cost and performance policies, and Cortex Sense to capture business context for AI agents. According to Ramaswamy, "The agentic enterprise runs on Snowflake — and this is just the beginning."