NetApp, Inc. Discusses Strategic Growth and AI Opportunities at Baird Global Consumer, Technology & Services Conference 2025

Key Takeaways

TL;DR: NetApp’s shift from a legacy hardware biz to a software-driven, cloud-integrated model is yielding results with robust all-flash and cloud rev. growth, expanding hyperscaler partnerships, and a strong enterprise AI play—all set against a cautious macro backdrop.

• Company Transformation & Overview
  • NetApp has evolved over 30 years to focus on its flagship software, ONTAP, for data and storage mgmt.
  • The co. has shifted from a HDD-dominant legacy to a model emphasizing all-flash systems and public cloud svcs, now making up more than 2/3 of rev.
  • FY '25 records include record total rev., all-flash, support, and public cloud rev.; non-GAAP GP & OP margins and EPS also hit record highs.
• Hyperscaler Partnerships & Cloud Strategy
  • Strategic Partnerships: NetApp powers cloud solutions on AWS, Azure, and Google—via Amazon FSx for NetApp ONTAP, Azure NetApp Files, and Google Cloud NetApp Volumes—enabling consistent data mgmt. across environments.
  • These alliances broaden customer reach by offering an easier monthly capacity purchase alternative versus large CapEx spend, esp. beneficial to smaller orgs and modern cloud adopters.
• Revenue Drivers & Market Share Gains
  • Growth Vectors: The VP highlighted four key growth vectors for FY '26: all-flash adoption, entry into the block-only market (w/ IDC reporting a 1-point share gain), cloud svcs (w/ reported growth over +40%), and enterprise AI demand.
  • IDC data shows a notable 3-point share gain in the all-flash market in calendar '24, indicating strong displacement of traditional storage players.
• Gross Margins & Earnings Outlook
  • Margin Dynamics:
    • Product GP margins are targeted in the mid to upper 50s, w/ expected slight increases driven by recent list price hikes and a shifting portfolio toward higher-margin all-flash solutions.
    • Support margins remain steady at ~92% and public cloud margins are projected to move above 80% from a Q4 exit of 79.3%.
  • Earnings Growth: With OpEx growing at roughly half the pace of rev., targeted quota-bearing sales capacity, focused investments in R&D for AI and flash, and share buybacks, NetApp expects continued OP leverage and earnings growth into FY '26.
• Enterprise AI Strategy
  • Internal Efficiency & Product Innovation:
    • NetApp is leveraging AI internally to boost team efficiency and integrating AI into its products (e.g., predictive analytics, caching capabilities) to enhance customer performance.
  • Market Opportunity:
    • The co. has seen a fivefold increase in AI biz in Q4, w/ 150+ AI or data lake modernization deals, and expects storage demand for enterprise AI inferencing and RAG tech to outpace that for model training.
  • Unified Data Approach: Facilitates customers in building AI centers of excellence, reducing inefficient data duplication, and optimizing data infrastructure.
• Macro Environment & Guidance Considerations
  • Caution Amid Uncertainty: NetApp’s guidance factors in macro uncertainty impacting U.S. federal spending and European export markets.
  • Despite these headwinds, the fully refreshed portfolio, ongoing share gains, and significant oppt'ys in data modernization and AI bolster confidence for FY '26.
• Key Takeaways for Investors
  • NetApp’s complete transformation into a higher-margin, growth-oriented software and cloud biz positions it as a leading choice for enterprises preparing for an AI-driven future.
  • “Forget about the history and really look to the future”—management stresses that the market is increasingly choosing NetApp as it builds an intelligent, secure, and unified data infrastructure essential for the next technological era.

This structure accentuates how NetApp's strategic pivots, operational improvements, and focus on evolving market demands (esp. in cloud and AI) underpin its longer-term growth prospects despite a cautious global economic landscape.

Call Q&A

• Colin Loyet: Could you provide an overview of NetApp and its current state?
  • Kris Newton: NetApp is a 30-year-old co. focused on delivering value through ONTAP, a software solution for data and storage mgmt. We've transformed from a disk-based system to all-flash systems and public cloud svcs. Our biz is divided into Hybrid Cloud and Public Cloud segments, w/ significant growth in public cloud svcs and all-flash solutions, making up over two-thirds of our rev. We set records in various financial metrics in FY '25 and are well-positioned for FY '26.
• Colin Loyet: Explain the nature of NetApp's partnerships with cloud providers like GCP, AWS, and Azure?
  • Kris Newton: Our partnerships involve leveraging ONTAP software in their clouds to offer high-performance file svcs, which they historically struggled with. We started with AWS, then Azure, and recently Google. These partnerships allow customers to have a consistent operating environment across on-premises and cloud, making it easier for new customers to adopt NetApp.
• Colin Loyet: What are the drivers of revenue for the upcoming fiscal year and beyond?
  • Kris Newton: We have four primary growth vectors: all-flash, block-only market, cloud svcs, and enterprise AI. All-flash is growing due to tech transitions. We've entered the block-only market with an optimized ONTAP version. Cloud svcs are growing over +40%, and enterprise AI is expected to see significant growth as companies deploy AI centers of excellence.
• Colin Loyet: Where are you seeing share gains in the competitive landscape?
  • Kris Newton: We've gained almost 3 points of share in the all-flash market and nearly a point in the block space, mainly at the expense of traditional storage players. We expect to continue gaining share as customers prefer NetApp's solutions.