rewrite this title Is Databricks a Threat to Snowflake’s Future? – Nanalyze

2020 was a year that will live in infamy. While the world was worried about running out of toilet roll, we were preoccupied with the onslaught of initial public offerings (IPOs) hitting the market. 2020 saw the most IPOs since the dot com bubble, so it’s safe to say we were quite busy when Snowflake (SNOW) joined the New York Stock Exchange in September 2020, but that didn’t stop us from taking a peek.

The company raised a whopping $3.3 billion and had a closing market cap of $68 billion on their first day of trading. With only $482 million in annualized revenue, that made Snowflake  one of the most expensive stocks on the market based on our simple valuation ratio (SVR), with a value of 141. For reference, our tech stock catalog average currently sits around 7.

Snowflake’s high valuation was a mix of the raging bull market coupled with the promise of an $81 billion total addressable market (TAM) for data warehousing, a fancy term for aggregating data from multiple sources and making decisions on it.

Competition Heats Up

Fast forward five years, and IPOs are back. 2025 is on track to see nearly as many IPOs as 2020, and one of the most anticipated offerings is none other than Databricks, a key competitor of Snowflake. While Databricks doesn’t have any explicit plans to go public yet, their most recent funding round valued the company at over $100 billion, 25% higher than Snowflake’s current valuation. Since we always like to invest in leaders, it’s worth looking into Databricks’s business to see what threat it poses to Snowflake.

Like Snowflake, Databricks is a cloud-based platform for analyzing large amounts of data. Both companies offer access to “data lakes,” or large repositories of structured and unstructured data from multiple sources. They also both operate on a pay-per-usage business model, giving them direct exposure to the growth of big data.

The difference between the two solutions lies mainly in their end use cases. Databricks is useful for complex computations due to their integrated machine learning operations (MLOps) services. Let’s say you’re a bank and you’ve started noticing higher-than-normal transaction disputes lately. You could use Databricks to digest millions of customer transactions and compare them to typical spending patterns to identify outliers and stop fraud before it happens. (Or you could just educate your elderly relatives on the importance of cybersecurity, but that’s much harder.)

You could perform this entire project natively in Databricks, starting with processing the data and ending with training, evaluating, and deploying the necessary AI model. Snowflake, on the other hand, has no built-in machine learning interface. It’s typically linked with platforms like AWS or Databricks to enable these types of operations. They’ve made strides with the introduction of Snowpark, which can be used to run Python-based machine learning workloads; however, Snowflake still lacks any kind of AI model lifecycle management tools.

AI Investments Bear Fruit

Just because Snowflake isn’t a leader in “Data Science and Machine Learning Platforms” doesn’t mean they’re not benefiting from the current AI boom. During their June 2025 “Snowflake Summit” (AKA: Investor Day), the company unveiled a suite of new tools to make AI more accessible to their users like Snowflake Intelligence (think chatbots for data analysis.) They also beefed up their Cortex offerings, which are the company’s nifty tools that allow their customers to use AI without needing any special skills or training. So easy even an MBA could do it.

Snowflake’s CEO touted the fact that “more than 6,100 accounts are using Snowflake’s AI every week.” Considering Snowflake has 12,000 total customers, this implies that half of Snowflake’s clientele are experimenting with AI at some level. In fact, demand for these new features prompted the company to raise their annual revenue guidance in their recent earnings report. Their CEO applauded the fact that AI influenced “nearly 50% of new logos” added, proving it’s not just hype.

Snowflake’s Falling Revenue Growth

While we’re on the subject of earnings, let’s see what happened to Snowflake’s falling revenue growth. That was the main topic of our 2024 check-in, and while the trend is continuing, it’s moderating.

Let’s be clear, slowing growth in itself isn’t a concern for us. It’s normal for a company’s growth to slow as it matures and low-hanging fruit gets consumed. Think of it this way. Snowflake’s revenue growth of 174% in 2020 sounds impressive until you consider that only equated to $168 million. Their “slowing” 29% growth in their most recent fiscal year equated to $820 million in additional revenue from 2019. Despite a smaller percentage, the actual dollar growth is much more significant.

Also consider that at a certain point, a company gets too large to where it’s not possible to grow at triple-digit levels. (Unless you’re NVIDIA.) Therefore, Snowflake’s outlook of 27% product revenue (which accounts for 99% of total revenues) growth for the current fiscal year is very respectable, if not impressive.

With that disclaimer out of the way, it’s worth looking into Snowflake’s net retention rate (NRR). Last year, we had concerns around their falling NRR which had dropped to 127%. With NRR now at 125%, the decline has continued, but at a slower pace. Since NRR and revenue growth are strongly correlated, we’re not surprised to see this at all. If you want to get really nitpicky, NRR actually increased in the most recent quarter, so we can call this a moot issue – for now.

The Elephant in the Room

If Databricks isn’t a threat to Snowflake’s future, Microsoft might be. Roughly two years ago, the software giant unveiled Fabric, their own data analytics application. The tool integrates data engineering, data science, data warehousing, and visualization into a single platform via a Software-as-a–Service (SaaS) business model. Sounds a lot like what Snowflake does, no?

The key differentiator is that Snowflake separates data storage and data processing into two distinct “clusters” for added scalability. If you run a query that requires a lot of compute power, Snowflake will make sure it only slows down that one particular data warehouse, rather than the whole data lake. Fabric lumps everything into one environment which adds simplicity but can make it harder to multitask.

While we don’t know exactly how much revenue Fabric brings in, Microsoft’s CEO recently noted that it’s growing at 55% year-over-year, making it the fastest growing database product in Microsoft’s history. If this is truly a $200 billion market, as Snowflake claims, there should be plenty of room for Snowflake, Databricks, and Microsoft to all share a piece of the pie, for now.

Is Snowflake Stock Overvalued?

After a 20% post-earnings rally, Snowflake shares are now trading at an SVR of 17.8. That’s a meaningful premium to our catalog average of 7 and Snowflake’s historical average of 13. But is it expensive? How long is a piece of string?

Let’s put these numbers into context. We’ll pretend Databricks is a public company. With annual revenue of $3.7 billion and a market cap of $100 billion, their SVR would clock in around 27. Sure, Databricks has much stronger growth than Snowflake, but Snowflake’s valuation doesn’t seem too outrageous when you compare it to their closest peer.

Looking at profitability – or the potential for profitability, in this case – Databricks currently operates at a higher gross margin: 80% versus Snowflake’s 66%. This is because Databricks customers operate their own compute, whereas Snowflake provides it for customers. This allows Databricks to run leaner. If you exclude non-cash expenses like stock-based compensation, Snowflake’s non-GAAP gross margin looks more competitive, at 76% as of year-end 2024.

The bright side here is that Snowflake is making strides to improve their profitability without sacrificing growth – and it’s working. Stock-based compensation is falling as a percentage of total revenue, and research and development costs have also shrunk to just 64% of gross profit, compared to 75% a year ago.

Conclusion

Back to the question at hand: is Databricks a threat to Snowflake’s future? Both companies seem to be in competition to become a one-stop shop for all your big data needs, and neither wants to give up market share.

For example, in 2024, Databricks acquired a data storage company founded by the creators of Apache Iceberg, an open-source big data table format. Not wanting to be shown up, Snowflake added Iceberg support to their own platform just weeks later. Later that year, Snowflake announced a partnership with Anthropic, then Databricks quickly added support for Anthropic’s large language model, Claude, to their toolbox.

The two firms are engaged in a fierce pissing contest competition, and while Databricks is a leader by size and growth, Snowflake still has greater annual revenue, a proxy for market share captured. It’s too early to tell whether Databricks will eat Snowflake’s lunch, but they’re certainly a formidable competitor, and worth keeping a close eye on for any Snowflake investor.