NetApp Stock: Riding the AI Wave – Is It a Buy?

Key Points

• NetApp stock reached a 20-year high driven by AI-driven tailwinds.
• NetApp provides intelligent data infrastructure solutions to public cloud service providers, including Amazon, Google, and Microsoft.
• NetApp beat fiscal Q4 2024 EPS by a penny and authorized an extra $1 billion to its stock buyback program.

Data infrastructure solutions provider NetApp Inc. NASDAQ: NTAP stock has hit 20-year highs. The company is reaping benefits from the artificial intelligence (AI) boom as data centers ramp up infrastructure to handle surging data demands and traffic. The company specializes in all-flash data storage and intelligent networking products and services. It helps automate and optimize data flow traffic management, implement zero-trust security models, and enhance the performance of on-premise and cloud infrastructure.

NetApp operates in the computer and technology sector with competitors Cisco Systems Inc. NASDAQ: CSCO, Palo Alto Networks Inc. NASDAQ: PANW, and Fortinet Inc. NASDAQ: FTNT.

What You Need to Know About NetApp's Hybrid Cloud and Public Cloud

NetApp operates in two segments: hybrid cloud and public cloud.

The public cloud offers services provided by a remote cloud service provider, who manages the infrastructure, including servers, storage, and the network. NetApp's well-known public cloud service provider (CSP) clients include Amazon.com Inc. NASDAQ: AMZN, Amazon Web Services (AWS), Alphabet Inc. NASDAQ: GOOGL, Google Cloud Platform (GCP) and Microsoft Co. NASDAQ: MSFT Azure.

These CSPs offer consumption model pricing, enabling their customers to easily scale resources and utilize services like computing power, databases, analytics, and storage. This is efficient and cost-effective for their customers, as they don’t have to maintain their own hardware or IT departments to handle the infrastructure. However, privacy and security are a concern for companies that have their data infrastructure residing with a third party. For this reason, many companies opt for a private cloud where the infrastructure is on-premise, which is resource-intensive.

A hybrid cloud combines public and private clouds. Companies use private clouds and on-premise infrastructure for critical data and applications while utilizing public cloud services for additional needs.

The public cloud is used for non-critical applications and workloads while providing additional scalable resources as needed. The hybrid cloud enables more control but comes with more complexity and higher costs.

NTAP Stock May Be in a Parabolic Arc Pattern

The daily candlestick chart for NTAP demonstrates a potential parabolic arc pattern. Potential is the keyword since parabolic arcs are reversal patterns. They are comprised of an initial peak, a pullback, and then a steep price surge triggered upon breaking out through the peak. A parabolic arc precedes the reversal, forming upon exhaustion and resulting in a pullback towards the earlier peak. The daily relative strength index has remained above the overbought 70-band upon NTAP breaking out through its earlier peak at $108.82. Pullback support levels are at $123.57, $115.02, $108.82, and $104.93.

A Record-Breaking Quarterly Performance for NetApp

NetApp reported a solid fiscal Q4 2024 EPS beat by a penny with $1.80 versus $1.79 consensus analyst estimates. Revenues rose 5.5% to $1.67 billion, beating consensus estimates of $1.64 billion. The all-flash (memory) array annualized revenue run rate (ARR) surges 17% YoY to $3.6 billion. Fiscal GAAP consolidated gross margins hit a record 71%, and non-GAAP consolidated gross margins hit a record 72%. Fiscal GAAP net income per share was $4.63, and non-GAAP net income was a record $6.46 per share. The company increased its dividend to 52 cents and authorized an additional $1 billion stock buyback.

NetApp's In-Line and Raised Guidance

NetApp issued in-line fiscal Q1 2025 guidance with EPS of $1.40 to $1.50 versus $1.44 consensus estimates and revenues of $1.455 billion to $1.605 billion versus $1.53 billion consensus estimates.

NetApp raised fiscal full-year 2025 EPS guidance between $6.80 and $7.00, compared to the $6.74 consensus estimates. Revenue guidance was between $6.45 billion and $6.65 billion, compared to the $6.53 billion consensus estimates.

NetApp Investor Day 2024 Highlights

On June 11, 2024, NetApp had its annual Investor Day. NetApp’s CEO George Curian told investors that NetApp’s total addressable market (TAM) will expand to over $100 billion by 2027, comprised of $40 billion from all-flash, $27 billion from the public cloud, $14 billion from AI storage, and $27 billion from file and block storage.

Analysts Were Impressed by NetApp

Susquehanna raised its price target to $155 from $138, maintaining its Positive rating on NTAP. Analysts noted that NetApp stands to benefit from $14 billion of AI market opportunity in 2027 from unstructured data driving generative AI business. NetApp enterprise data is 70% to 80% unstructured data. Stifel raised its price target to $180 from $130, citing EPS growth will be driven by gross margin expansion from a greater mix of cloud services, all-flash array, and share buybacks.

NetApp analyst ratings and price targets are at MarketBeat.