NTAP: Margin Strength And Cloud Momentum Will Support Measured Future Upside

Analysts have nudged our NetApp price target slightly lower to approximately $124.33 from $125.00, reflecting only modest tweaks to long term growth, margin, and valuation assumptions, even as recent Street research highlights stronger than expected margins, robust all flash array performance, and sustained high teens public cloud growth.

Analyst Commentary

Recent Street commentary presents a largely constructive view on NetApp, with price targets edging higher alongside recognition of stronger profitability and resilient demand trends. Nevertheless, some caution remains around the durability of these factors through a full cycle.

Bullish Takeaways

Bullish analysts have lifted price targets into the $120 to mid $130 range, signaling increased confidence that NetApp can sustain higher earnings power and justify a richer valuation multiple.
Margins are viewed as the key upside surprise, with recent results coming in materially above prior expectations and reinforcing the thesis that ongoing mix shift and efficiencies can structurally support elevated profitability.
All flash array performance is described as particularly strong, underpinning confidence in NetApp's competitive position and supporting a narrative of durable mid term revenue growth in its core storage franchise.
Public cloud offerings continue to post high teens growth, which bullish analysts see as an important incremental driver to the equity story, adding a higher growth, higher multiple component to the overall business mix.

Bearish Takeaways

Bearish analysts maintain more neutral stances on the shares, suggesting that a portion of the margin upside and execution strength may already be reflected in current valuation, limiting near term multiple expansion.
The demand backdrop is characterized as broadly in line with expectations rather than accelerating, raising questions about how much further upside remains to consensus revenue growth assumptions.
Some remain cautious about the sustainability of exceptionally strong gross margins if competitive intensity increases or if macro conditions soften, which could pressure both pricing and mix.
There is lingering concern that high teens public cloud growth, while healthy today, may normalize over time, potentially tempering the longer term growth narrative that underpins the higher end of the current price target range.

What's in the News

Expanded collaboration with F5 pairs NetApp intelligent data infrastructure with F5 Application Delivery and Security Platform to boost high performance AI data delivery and introduce post quantum cryptography ready protections for S3 workloads. (Strategic Alliances)
New Amazon S3 Access Points support for Amazon FSx for NetApp ONTAP lets enterprises connect AWS AI and analytics services directly to ONTAP data across cloud and on premises, simplifying and accelerating AI and analytics projects while keeping data in place. (Product Related Announcements)
NetApp unveiled AFX and NetApp AI Data Engine, a new AI focused data platform integrated with NVIDIA AI technologies, designed to decouple performance and capacity and streamline secure AI data pipelines across hybrid and multicloud environments. (Product Related Announcements)
Management issued fiscal 3Q26 and full year 2026 guidance calling for mid single digit revenue growth and operating margins in the mid 20 percent range, reinforcing the margin expansion narrative that underpins recent estimate and target raises. (Corporate Guidance - New/Confirmed)
NetApp announced enhanced Ransomware Resilience services, adding AI driven data breach detection and isolated recovery environments to strengthen cyber resilience for ONTAP workloads as enterprises scale AI and modernize data infrastructure. (Product Related Announcements)

Valuation Changes

Fair Value: Reduced slightly to approximately $124.33 from $125.00, reflecting minor adjustments to long term assumptions.
Discount Rate: Edged down modestly to about 8.52 percent from 8.54 percent, implying a slightly lower required return.
Revenue Growth: Trimmed marginally to roughly 4.62 percent from 4.64 percent, indicating a very small downgrade to long term top line expectations.
Net Profit Margin: Adjusted fractionally lower to about 19.64 percent from 19.64 percent, effectively unchanged in the context of the overall model.
Future P/E: Lowered modestly to about 19.38x from 19.58x, signaling a slightly more conservative valuation multiple on forward earnings.

Surging AI and hybrid cloud adoption is boosting demand for NetApp's integrated, subscription-based storage solutions and expanding its high-margin, recurring revenues.
Strengthened hyperscaler partnerships and cloud innovations position NetApp for increased market share, long-term revenue growth, and enhanced profitability.
Ongoing cloud migration, geographic revenue concentration, and intensifying competition threaten NetApp's growth, margins, and ability to maintain premium positioning in a shifting storage market.

Catalysts

About NetApp

Provides a range of enterprise software, systems, and services that customers use to transform their data infrastructures in the United States, Canada, Latin America, Europe, the Middle East, Africa, and the Asia Pacific.What are the underlying business or industry changes driving this perspective?

Accelerating adoption of AI and analytics workloads across industries is driving demand for unified, high-performance, and scalable data infrastructure, with NetApp securing over 125 AI wins in Q1 (more than doubling year-over-year); this trend is expected to drive revenue and earnings growth as AI deployments move from proofs-of-concept to large-scale production.
Ongoing enterprise migration to hybrid and multi-cloud environments is creating sustained demand for NetApp's natively integrated first-party and marketplace cloud storage services, which grew 33% year-over-year and are expanding recurring, higher-margin subscription revenues and improving gross margin stability.
NetApp's deepening partnerships and integration with hyperscalers (AWS, Azure, Google Cloud) and advancements in hybrid, cloud, and edge-ready solutions position it to capture incremental share in a rapidly growing addressable market, supporting long-term revenue expansion and market leadership.
Substantial growth in Keystone Storage-as-a-Service (up ~80% year-over-year) and increased deferred revenue (+9% year-over-year) indicate growing preference for subscription-based and as-a-service storage, supporting higher revenue visibility and margin expansion as mix continues to shift toward high-value services.
Expanding portfolio of AI-ready innovations, operating efficiencies, and consistent improvements in Public Cloud gross margins (now guided to 80–85%, up from 75–80%), are expected to further enhance profitability and drive long-term earnings growth.

NetApp Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming NetApp's revenue will grow by 4.3% annually over the next 3 years.
Analysts assume that profit margins will increase from 17.8% today to 19.0% in 3 years time.
Analysts expect earnings to reach $1.4 billion (and earnings per share of $6.98) by about September 2028, up from $1.2 billion today.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.5x on those 2028 earnings, down from 21.0x today. This future PE is lower than the current PE for the US Tech industry at 24.3x.
Analysts expect the number of shares outstanding to decline by 2.52% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.3%, as per the Simply Wall St company report.

NetApp Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

NetApp's traditional product revenue is declining (down 2% year-over-year in Q1), indicating potential risk from broader industry trends such as the shift away from on-premises storage toward public cloud and commoditization by hyperscalers, which can compress long-term revenue growth.
Large portions of NetApp's growth are currently concentrated in the Americas, with persistent softness in the U.S. public sector and EMEA (Europe, Middle East, Africa); continued geographic concentration and regional weakness could limit sustainable international revenue expansion and earnings predictability.
The migration of enterprise customers and workloads to hyperscalers like AWS and Azure, and NetApp's reliance on partnerships with these cloud providers creates margin compression risk and reduces differentiation, which could weigh on future gross margins and competitive positioning.
Increasing customer adoption of Storage-as-a-Service (Keystone) and subscription-based models, while driving some recurring revenues, may initially pressure near-term cash flows and revenue recognition, and complicate long-term profitability compared to legacy high-margin hardware sales.
Heightened competition-both from established rivals and new open-source or cloud-native storage providers-places ongoing downward pressure on pricing and poses a risk to NetApp's ability to maintain premium pricing, directly impacting future gross margins and net earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $118.286 for NetApp based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $130.0, and the most bearish reporting a price target of just $100.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.5 billion, earnings will come to $1.4 billion, and it would be trading on a PE ratio of 19.5x, assuming you use a discount rate of 8.3%.
Given the current share price of $123.12, the analyst price target of $118.29 is 4.1% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

NTAP: Cloud Software Momentum And Margin Recovery Will Drive Measured Upside Ahead