With shares of the data cloud technology company Snowflake (SNOW 0.56%) With the company under pressure this week following the release of its second-quarter earnings report, some investors may be wondering if this is a good opportunity to invest in the growth stock on a dip. After all, not only have shares fallen more than 40% over the past 12 months, but they are also trading well below the $245 price at which the stock traded in its 2020 stock market debut.

However, investors should not be fooled by falling share prices and automatically conclude that the data cloud platform provider’s shares are a bargain. A close look at Snowflake’s earnings report reveals several major concerns about the company – especially related to the stock’s astronomical valuation.

Slower growth

The reacceleration in product revenue (about 95% of total revenue) earlier this year didn’t last long. The company, which provides a platform for businesses to access, manipulate and share their data in a unified and seamless digital environment, reported a product revenue growth rate of 34% in the first quarter of fiscal 2025, compared to 33% in the quarter ended three months earlier. But that key metric fell to 30% in Snowflake’s just-released quarter.

If it weren’t for yet another disappointing data point related to Snowflake’s growth, investors could probably forgive the company for a slight slowdown in its high growth rates. But the following key metric was particularly disappointing in the context of the company’s growth story. Management forecast product revenue growth of just 22% year over year for the fiscal third quarter.

The problem with this slowing growth and management’s revenue forecasts is how it compares to the stock’s inflated valuation. As an unprofitable technology company trading at 13 times revenue, investors should set the bar high for Snowflake’s business performance. A slowdown like this could cause investors to lose confidence in the company’s ability to grow over time and become profitable enough to justify such a rosy valuation.

Huge losses

Perhaps even more concerning is the company’s disheartening bottom line. Snowflake’s net loss of about $318 million for the quarter is not only higher in absolute terms than the year-ago quarter’s loss of about $227 million, but also as a percentage of total quarterly revenue. The net loss in the second quarter of fiscal 2025 was more than 36% of revenue. That compares to 34% of revenue in the year-ago period.

This was due to an increase in the company’s investments in research and development, marketing and the purchase of high-tech chips to power its platform.

The unlikely bull case

Overall, I believe that falling revenues and higher costs will negate the bullish outlook for this stock – at least at current prices. However, I must point out that I could be wrong: this revenue decline could be the bottom.

Management noted on the second-quarter conference call that it is seeing signs of a more stable demand environment. Because Snowflake books revenue based on customer usage of its platform, the data cloud specialist’s customers often focus on optimizing their usage as they try to be more judicious with their spending. These “optimizations,” as management calls them, increased over the past year but are now showing signs of stabilizing, Snowflake CFO Michael Scarpelli told investors on the call.

If improving demand helps keep Snowflake’s product revenue growth rate from slowing further, the company could grow into its valuation faster than I expect. Still, I would call that prediction speculative at this point.

Investors who own Snowflake shares should consider whether they should sell the stock and buy something that seems more attractive.