NetApp’s NTAP shares have proven resilient, with a 37.8% gain in the past year, outpacing the industry’s growth of 10.7%. NetApp provides enterprise storage as well as data management software and hardware products and services.

It has also outperformed the Zacks Computer and Technology sector and the S&P 500 composite’s growth of 27.8% and 24.8%, respectively. Closing at $122.09 in the last trading session, NTAP stock is currently trading 9.9% below its 52-week high of $135.45, attained on Nov. 22, 2024.

Price Performance

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With the pullback from 52-week high along with strong business momentum, is NTAP an attractive investment opportunity? 

Let us discuss NTAP’s prospects and ascertain how to strategize investment.

NTAP’s Flash & Public Cloud Business Key Drivers

NetApp is witnessing higher demand from customers for its portfolio of modern all-flash arrays, especially the C-series capacity flash and ASA block-optimized flash. The new all-flash A-series is also picking up momentum. These enterprise storage products will allow users to boost workloads including traditional enterprise applications and Gen AI. 

The company expects the new AFF A-series, along with its C-series and ASA products, to capture further share in the all-flash market. In the fiscal second quarter, the company’s All-Flash Array Business’s annualized net revenue run rate was $3.8 billion, up 19% year over year. Total billings rose 9% year over year to $1.59 billion. 

Also, Keystone’s storage-as-a-service offering has been gaining significant traction, with revenues increasing more than 55% year over year in the fiscal second quarter. Unbilled RPO was $330 million, up 11% quarter over quarter. Unbilled RPO is a key indicator of Keystone's growth.

Solid momentum in hyperscaler first-party and marketplace storage services has been driving revenues from the Public Cloud. The Public Cloud segment comprises revenues from products delivered as a service and related supports. The portfolio contains cloud automation and optimization services, storage and cloud infrastructure monitoring services. 

Public Cloud segment’s revenues improved 9% to $168 million, driven by 43% increase in first-party and marketplace cloud storage services. Driven by strength in the cloud storage business, NetApp now expects cloud revenues to return to double-digit growth year over year from the current quarter.

NTAP Raises Outlook

Driven by strong year-to-date performance and strength in flash, block, cloud and AI, NetApp now expects full-year revenues in the range of $6.54-$6.74 billion, up 6% year over year at the mid-point. Earlier it anticipated sales in the band of $6.48-$6.68 billion. The company now forecasts non-GAAP earnings per share for fiscal 2025 to be between $7.20 and $7.40, up 13% year over year at the mid-point. Earlier, it expected non-GAAP earnings between $7 and $7.20 per share. 

For fiscal 2025, NetApp continues to expect non-GAAP gross margin in the range of 71-72%. Non-GAAP operating margin is anticipated in the band of 28-28.5% compared with 27-28%. 

NetApp recently inked a definitive agreement to divest its Spot by NetApp FinOps business to Flexera, a global technology spend and risk management player. NetApp acquired cloud services startup –– Spot –– in July 2020.  The divesture aligns seamlessly with NetApp’s vision of fostering long-term growth and innovation in the intelligent data infrastructure. While the financial details of the transaction remain undisclosed, the acquisition is subject to customary closing conditions, including regulatory approvals.

AI Momentum Long-term Growth Driver for NTAP

Apart from the demand for flash and block, increasing demand for NetApp’s cloud storage and AI solutions bodes well. In the fiscal second quarter, the company won more than 100 AI and data lake modernization deals. The company is also working on the development of GenAI cloud and on-premises solutions in collaboration with industry behemoths. 

NetApp expanded its partnership with Google Cloud to provide the foundational data storage for the Google Distributed Cloud and make AI-ready infrastructure available to the public sector and other highly regulated industries. NetApp's intelligent data infrastructure, bolstered by ONTAP and StorageGRID solutions, empowers its customers to efficiently scale workloads and harness AI while ensuring security and regulatory compliance. Google Distributed Cloud will also use these capabilities to enhance its services, including databases, AI and analytics.

NTAP’s Healthy Capital Allocation Strategy

Management’s execution has been favorable in recent times. NetApp’s cash, cash equivalents and investments was $2.22 billion while long-term debt was $1.244 billion as of Oct. 25, 2024. For the fiscal second quarter, the company generated net cash from operations was $105 million and free cash flow was $60 million. Net cash balance provides the required flexibility to pursue any growth strategy, whether through acquisitions or otherwise. 

A strong balance sheet helps NetApp to continue its shareholder-friendly initiatives of dividend payouts. The company returned $406 million to its shareholders as dividend payouts and share repurchases in the last reported quarter. The company has $800 million worth of shares remaining under its existing authorization. 

NetApp also announced a dividend of 52 cents per share payable on Jan. 22, 2025, to its shareholders of record as of the close of business on Jan. 3.

Northbound Estimates for NTAP

In the past 60 days, analysts have increased their earnings estimates for the current and the next quarter by 3.8% and 4.7% to $1.90 and $2 per share, respectively. The same for the current year has been revised upward by 3.3% to $7.31 per share.

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How to Strategize Investment in NTAP Stock?

While challenges persist, solid demand for the portfolio of modern all-flash arrays and AI momentum bodes well for NTAP.  Solid estimate revision activity along with recent pullback from its 52-week high presents a potential entry point for investors, especially with NTAP holding a Zacks Rank #2 (Buy) at present.

Other Stocks to Consider

Other top-ranked stocks worth consideration from the broader technology space are DXP Enterprises, Inc DXPE, InterDigital, Inc. IDCC and Five9, Inc. FIVN. While DXPE and IDCC sport a Zacks Rank #1 (Strong Buy) each, FIVN carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for DXPE’s 2024 and 2025 EPS is pegged at $4.07 and $4.31, respectively, unchanged in the past seven days. Its shares have increased 216.7% in the past year.

The Zacks Consensus Estimate for IDCC’s 2024 earnings is pegged at $15.19 per share, unchanged in the past seven days. IDCC’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 163.7%. Its shares have surged 60.4% in the past year.

The Zacks Consensus Estimate for FIVN’s 2024 EPS is pegged at $2.37, unchanged in the past seven days. Five9’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 22.46%.

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