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When data platform companySnowflake (SNOW 4.85%) had its initial public offering in September 2020, it immediately became one of the most highly valued publicly traded cloud and software companies. Even after high inflation, rising interest rates, and the possibility of a global recession reduced its value, the company remains among the most highly valued cloud companies in the market.

Here is one big reason Snowflake outperforms the rest of the cloud and software industry.

Over the last two years, several consulting firms have published research concluding that data-driven companies are more likely to acquire customers, beat revenue goals, and increase profits than those without a data strategy. As a result, business leaders have become more aware that to remain competitive in their industry, they must pursue data-driven and digital transformation strategies -- requiring increased investment in data management technology. And many companies are choosing Snowflake for this essential service.

Image source: Snowflake.

Snowflake differentiated itself from other data management platforms by developing a disruptive architecture for data storage, processing, analyzing, sharing, and monetization, which it calls the data cloud. This data cloud can function as a database (holds data for application use), a data warehouse (contains filtered data for later analysis), or a data lake (stores unfiltered data). In addition, the data cloud includes a modern marketplace that permits companies, governments, and other entities to trade, buy, or share data -- an industry first.

As a result of Snowflake's unique innovations in the data industry, it rapidly grew from the time its founders started the company in 2012 to achieving a 19.73% market share in the data warehousing category in 2022, according to the marketing intelligence firm Slintel. Only Amazon'sRedshift is ahead with a 22.16% share.

Yet, despite its strong growth, Snowflake has only penetrated a tiny sliver of its opportunity.

Image source: Snowflake.

As of quarter's end in June of fiscal 2023, the company made $1.63 billion in trailing 12-month (TTM) revenue against a projected $248 billion total addressable market (TAM), meaning it has yet to reach even 1% of its TAM.

Despite the ongoing macroeconomic turbulence, Snowflake's revenue growth trajectory exceeds that of virtually every other cloud company. The following chart compares its revenue growth trend on a TTM basis to a few other significant cloud stocks.

SNOW Revenue (TTM) data by YCharts

In addition, this revenue growth is translating into rapid free cash flow (FCF) growth.

SNOW Free Cash Flow data by YCharts

As long as Snowflake maintains a strong positive free cash flow, it can continue judiciously hiring and investing in key growth initiatives throughout this downturn -- extending its lead over emerging competitors. For instance, in June the company revealed in Canadian newspaper The Globe and Mail that it would open a Toronto office and hire hundreds of people -- impressive considering that many technology companies are hiring slowly, canceling projects, and even laying off workers in this poor economy.

Although the company has performed well up until now, one issue that Snowflake bears worry about is that its usage-based pricing model could present a problem should customers cut back on using its services in a worsening economy.

CFO Mike Scarpelli's commentary on the first-quarter fiscal 2023 earnings call likely contributed to the stock's sluggish performance from late May to the middle of June. Scarpelli noted slowing growth for consumer-facing cloud companies. Any further news of slowing growth in other sectors of the economy could result in a further downdraft in the stock, especially considering the stock's relatively high valuation. Snowflake sells at a price-to-sales (P/S) ratio of 33.3 compared to the computer processing and cloud services industry P/S ratio of 4.3.

However, the good news is that Scarpelli said on the second-quarter earnings call that leading indicators of the macro economy's impact on the business remain solid across most of its customer base. For example, one metric he highlighted was the outperformance of small and medium-sized companies in net new bookings during the quarter. Additionally, Snowflake's largest global customers continue to increase their usage, indicating that these large enterprises consider the data cloud essential to their business operations.

While this stock could remain volatile in the short term, Snowflake is still an excellent bet for continued outperformance. If you are a long-term investor, there are few better places to invest than this dominant data platform.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rob Starks Jr has positions in Amazon, CrowdStrike Holdings, Inc., MongoDB, Okta, and Snowflake Inc. The Motley Fool has positions in and recommends Amazon, CrowdStrike Holdings, Inc., MongoDB, Okta, Salesforce, Inc., ServiceNow, Inc., Snowflake Inc., Twilio, Zendesk, and Zscaler. The Motley Fool has a disclosure policy.

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1 Big Reason Why Snowflake Is Outperforming the Rest of the Software Industry - The Motley Fool