NetApp (NASDAQ:NTAP) stock soared to a more than 23-year high following its quarterly results, highlighting robust demand for its all-flash arrays and promising momentum in artificial intelligence (AI).
The stock surged by as much as 26.2% to $112.48, marking its highest level since November 7, 2000. By afternoon trade, it was up 20.4%.
In its latest earnings report, NetApp (NTAP) exceeded expectations for both top and bottom lines for FQ3 2024, prompting the company to raise its annual profit guidance for the second consecutive quarter.
Analyst Meta Marshall from Morgan Stanley noted that NetApp achieved historical best operating margins, with favorable NAND pricing and flash portfolio growth significantly improving gross margins year-over-year. However, Marshall cautioned that while gross margins remain impressive, they could face pressure as some favorable contracts expire next year, potentially challenging meaningful EPS growth.
Despite these concerns, NetApp’s all-flash array (AFA) annualized revenue run rate hit a quarterly record, surging 21% year-over-year to $3.4 billion. This growth reflects increasing demand for storage solutions, particularly with the proliferation of artificial intelligence applications.
During the earnings conference call, NTAP CEO George Kurian highlighted the expansion of the company’s all-flash business, which now accounts for approximately 60% of the Hybrid Cloud segment revenue in Q3. Kurian expressed optimism about a sustainable increase in the baseline product gross margin going forward, driven by the continued revenue shift to all-flash.
Meanwhile, NTAP’s competitor in the data storage industry, Pure Storage (PSTG), also reported strong results earlier in the week, particularly in subscriptions for its data storage products.
Wedbush analyst Matt Bryson acknowledged NTAP’s beat and raise performance in the quarter, attributing part of the upside to the company’s conservative guidance. Bryson maintained a Neutral rating on NTAP stock but raised the price target to $100 per share from $85.
Bryson highlighted the structural trend of lower flash pricing leading to a greater adoption of all-flash arrays (AFAs) over traditional disk storage in various applications. He noted that AFAs are increasingly favored for AI applications due to their higher performance capabilities. While acknowledging that some younger AFA vendors may have a competitive edge, Bryson emphasized NetApp’s (NTAP) superior solutions compared to traditional server OEMs, suggesting that a sustained shift from disk or converged solutions to flash storage could benefit NTAP’s revenues.
NTAP CEO George Kurian echoed this sentiment during the conference call, citing “dozens of customer wins” in the quarter related to AI. These wins included significant deployments with Nvidia (NVDA) for AI data center infrastructure, such as SuperPOD and BasePOD.
Kurian emphasized NTAP’s role in helping organizations unify their data in modern data lakes, deploy large-scale model training environments, and operationalize AI models into production environments. He highlighted the importance of high-performance and scalable unified data storage systems in creating intelligent data pipelines for AI applications, enabling customers to capture, aggregate, and prepare their data effectively.