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NetApp Up 62% in the Past Year: Should Investors Buy the Stock?
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Key Takeaways
NetApp shares gained 64.9% in a year, backed by strong AI demand, cloud expansion and storage modernization.
NTAP's Q1 revenues jumped 30% to $2.03B, prompting management to raise its fiscal 2027 revenue outlook.
NetApp's 47% flash revenue growth and 28% cloud gains face rising component costs and gross margin pressure.
NetApp, Inc.’s (NTAP - Free Report) shares have surged 62.2% in the past year compared to the Zacks Computer & Technology sector and the Zacks Computer- Storage Devices industry’s growth of 8.1% and 137.3%, respectively. The S&P 500 composite is up 11.1% over the same time frame.
The company faces stiff competition from its peers such as Super Micro Computer, Inc. (SMCI - Free Report) , Hewlett Packard Enterprise Company (HPE - Free Report) and Seagate Technology Holdings plc (STX - Free Report) . SMCI has lost 26.6% while HPE and STX have climbed 114.1% and 100%, respectively, in the past six months.
Image Source: Zacks Investment Research
Let us take a closer look at NTAP’s fundamentals, key growth drivers, competitive strengths and potential risks to determine whether the stock remains an attractive investment.
Robust Storage Demand and AI-Led Growth Opportunities
NetApp is gaining from accelerating adoption of its all-flash storage solutions as enterprises modernize infrastructure to support mission-critical and AI-intensive workloads. All-flash array revenues jumped 47% year over year to $1.31 billion in the fiscal first quarter, supported by demand for high-performance, low-latency and cyber-resilient storage. Growing interest in hybrid flash solutions further strengthens its ability to address diverse customer requirements.
NetApp is also capitalizing on expanding AI infrastructure investments as enterprises transition from experimentation to production-scale deployments. The company secured approximately 350 AI and data lake modernization deals during the quarter, with transaction sizes increasing as customers expanded their AI workloads. Significant agreements with Samsung Electronics, a public-sector organization deploying NetApp AFX with NVIDIA SuperPOD, and an Asian neocloud provider highlight growing adoption. These developments reinforce NetApp's competitive position in supporting GPU-intensive AI environments and advanced analytics.
Expanding Cloud Business and Strategic Acquisitions
NetApp is benefiting from increasing demand for cloud-native storage services and enterprise workload migrations. Public Cloud revenues grew 28% year over year to $206 million during the fiscal first quarter, supported by strong adoption of first-party and marketplace offerings. Amazon FSx for NetApp ONTAP and Azure NetApp Files are gaining traction as customers seek efficient VMware migrations and cloud modernization. Meanwhile, the Keystone storage-as-a-service business continues to witness robust growth, strengthening NetApp's recurring revenue opportunities.
The company's strategic acquisitions are further enhancing its competitive positioning in AI and cloud infrastructure. The acquisition of DataPelago strengthens in-place data processing capabilities, enabling enterprises to accelerate AI readiness without costly data movement. The JetStream acquisition, completed at the beginning of the fiscal second quarter, expands cloud-native disaster recovery capabilities for VMware environments. These additions broaden NetApp's addressable market and strengthen its ability to support enterprise modernization initiatives.
Strong Financial Performance and Upbeat Outlook
NetApp is benefiting from broad-based demand for its data infrastructure solutions, supported by increasing investments in AI and infrastructure modernization. In the first quarter of fiscal 2027, revenues surged 30% year over year to $2.03 billion, while non-GAAP earnings increased 66% to $2.58 per share. Operating margin expanded 610 basis points (bps) to 31.9%, reflecting strong execution and operating leverage.
Encouraged by this momentum, management raised its fiscal 2027 revenue guidance by $650 million to $7.98-$8.23 billion and increased its earnings outlook to $9.73-$10.03 per share. For the second quarter of fiscal 2027, NetApp expects revenues of $2.03-$2.18 billion.
Image Source: Zacks Investment Research
Rising Costs Pressure Margins
NetApp is grappling with rising component costs and an unfavorable revenue mix, which could weigh on profitability. Fiscal first-quarter product gross margin declined 150 bps sequentially to 54.6%, primarily due to higher component costs. Overall gross margin contracted 50 bps year over year to 70.6%. Management expects second-quarter gross margin of 67-68%, reflecting a higher contribution from product revenues. Although pricing adjustments are helping offset cost inflation, sustained component cost pressures and a greater product revenue mix could constrain margin expansion.
NTAP’s Valuation
NTAP trades at a forward 12-month price-to-earnings (P/E) of 17.78X, above the industry’s 7.05X. SMCI, HPE and STX trade at a forward 12-month P/E of 5.91X, 13.09X and 13.11X, respectively.
Image Source: Zacks Investment Research
The premium valuation is justified to an extent by the company’s strong growth trajectory, improving profitability, robust demand for its cloud and AI solutions, and favorable long-term growth prospects.
NTAP’s Estimates Revised Upward
The Zacks Consensus Estimate for NTAP’s earnings for fiscal 2027 has been unchanged over the past 30 days.
Image Source: Zacks Investment Research
What Should You Do With NTAP Stock Now?
NetApp's strong AI-driven storage demand, expanding cloud business, solid earnings growth and upbeat fiscal 2027 outlook support its long-term growth prospects, despite margin pressures and premium valuation.
New investors can consider buying NTAP shares, while existing shareholders should stay invested to benefit from its growth opportunities.
View the Zacks #1 Rank List
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NetApp Up 62% in the Past Year: Should Investors Buy the Stock?
Key Takeaways
NetApp, Inc.’s (NTAP - Free Report) shares have surged 62.2% in the past year compared to the Zacks Computer & Technology sector and the Zacks Computer- Storage Devices industry’s growth of 8.1% and 137.3%, respectively. The S&P 500 composite is up 11.1% over the same time frame.
The company faces stiff competition from its peers such as Super Micro Computer, Inc. (SMCI - Free Report) , Hewlett Packard Enterprise Company (HPE - Free Report) and Seagate Technology Holdings plc (STX - Free Report) . SMCI has lost 26.6% while HPE and STX have climbed 114.1% and 100%, respectively, in the past six months.
Image Source: Zacks Investment Research
Let us take a closer look at NTAP’s fundamentals, key growth drivers, competitive strengths and potential risks to determine whether the stock remains an attractive investment.
Robust Storage Demand and AI-Led Growth Opportunities
NetApp is gaining from accelerating adoption of its all-flash storage solutions as enterprises modernize infrastructure to support mission-critical and AI-intensive workloads. All-flash array revenues jumped 47% year over year to $1.31 billion in the fiscal first quarter, supported by demand for high-performance, low-latency and cyber-resilient storage. Growing interest in hybrid flash solutions further strengthens its ability to address diverse customer requirements.
NetApp is also capitalizing on expanding AI infrastructure investments as enterprises transition from experimentation to production-scale deployments. The company secured approximately 350 AI and data lake modernization deals during the quarter, with transaction sizes increasing as customers expanded their AI workloads. Significant agreements with Samsung Electronics, a public-sector organization deploying NetApp AFX with NVIDIA SuperPOD, and an Asian neocloud provider highlight growing adoption. These developments reinforce NetApp's competitive position in supporting GPU-intensive AI environments and advanced analytics.
Expanding Cloud Business and Strategic Acquisitions
NetApp is benefiting from increasing demand for cloud-native storage services and enterprise workload migrations. Public Cloud revenues grew 28% year over year to $206 million during the fiscal first quarter, supported by strong adoption of first-party and marketplace offerings. Amazon FSx for NetApp ONTAP and Azure NetApp Files are gaining traction as customers seek efficient VMware migrations and cloud modernization. Meanwhile, the Keystone storage-as-a-service business continues to witness robust growth, strengthening NetApp's recurring revenue opportunities.
The company's strategic acquisitions are further enhancing its competitive positioning in AI and cloud infrastructure. The acquisition of DataPelago strengthens in-place data processing capabilities, enabling enterprises to accelerate AI readiness without costly data movement. The JetStream acquisition, completed at the beginning of the fiscal second quarter, expands cloud-native disaster recovery capabilities for VMware environments. These additions broaden NetApp's addressable market and strengthen its ability to support enterprise modernization initiatives.
Strong Financial Performance and Upbeat Outlook
NetApp is benefiting from broad-based demand for its data infrastructure solutions, supported by increasing investments in AI and infrastructure modernization. In the first quarter of fiscal 2027, revenues surged 30% year over year to $2.03 billion, while non-GAAP earnings increased 66% to $2.58 per share. Operating margin expanded 610 basis points (bps) to 31.9%, reflecting strong execution and operating leverage.
Encouraged by this momentum, management raised its fiscal 2027 revenue guidance by $650 million to $7.98-$8.23 billion and increased its earnings outlook to $9.73-$10.03 per share. For the second quarter of fiscal 2027, NetApp expects revenues of $2.03-$2.18 billion.
Image Source: Zacks Investment Research
Rising Costs Pressure Margins
NetApp is grappling with rising component costs and an unfavorable revenue mix, which could weigh on profitability. Fiscal first-quarter product gross margin declined 150 bps sequentially to 54.6%, primarily due to higher component costs. Overall gross margin contracted 50 bps year over year to 70.6%. Management expects second-quarter gross margin of 67-68%, reflecting a higher contribution from product revenues. Although pricing adjustments are helping offset cost inflation, sustained component cost pressures and a greater product revenue mix could constrain margin expansion.
NTAP’s Valuation
NTAP trades at a forward 12-month price-to-earnings (P/E) of 17.78X, above the industry’s 7.05X. SMCI, HPE and STX trade at a forward 12-month P/E of 5.91X, 13.09X and 13.11X, respectively.
Image Source: Zacks Investment Research
The premium valuation is justified to an extent by the company’s strong growth trajectory, improving profitability, robust demand for its cloud and AI solutions, and favorable long-term growth prospects.
NTAP’s Estimates Revised Upward
The Zacks Consensus Estimate for NTAP’s earnings for fiscal 2027 has been unchanged over the past 30 days.
Image Source: Zacks Investment Research
What Should You Do With NTAP Stock Now?
NetApp's strong AI-driven storage demand, expanding cloud business, solid earnings growth and upbeat fiscal 2027 outlook support its long-term growth prospects, despite margin pressures and premium valuation.
New investors can consider buying NTAP shares, while existing shareholders should stay invested to benefit from its growth opportunities.
NetApp currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.