NTAP Q3 Deep Dive: AI and Cloud Portfolio Drive Growth Amid Macro Uncertainty

Data storage company NetApp (NASDAQ:NTAP) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 2.8% year on year to $1.71 billion. On the other hand, next quarter’s revenue guidance of $1.69 billion was less impressive, coming in 1.1% below analysts’ estimates. Its non-GAAP profit of $2.05 per share was 8.8% above analysts’ consensus estimates.

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StockStory’s Take

NetApp’s third quarter results were met with a positive market reaction, reflecting management’s focus on high-margin segments and operational efficiency. CEO George Kurian pointed to the company’s unified data platform and strong momentum in all-flash arrays and public cloud services as key contributors. He also highlighted that AI-driven infrastructure deals nearly doubled year over year, and that recent product launches—such as AFX and the AI Data Engine—helped address growing customer demand for scalable, secure storage solutions. Kurian emphasized, “Customers are choosing NetApp for our unified data platform that delivers exceptional value and operational efficiencies, fueling our success in the face of the ongoing macro environment.”

Looking ahead, NetApp’s guidance is shaped by expectations for continued strength in its cloud and AI-focused offerings, alongside a cautious view of U.S. public sector demand. CFO Wissam Jabre noted that a favorable product and revenue mix, paired with disciplined cost controls, underpins the company’s improved margin outlook for the year. Management is particularly focused on sustaining growth in cloud storage and Keystone, its storage-as-a-service solution, while navigating potential volatility in component costs. Kurian stated, “We remain confident that our visionary approach to a data-driven future will enable us to outgrow the market and capture additional share.”

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to robust execution in cloud and AI-focused products, as well as operational discipline that improved profitability metrics.

• AI workload momentum: NetApp closed approximately 200 AI infrastructure and data lake modernization deals, nearly doubling the pace from a year ago. These wins were driven by demand for scalable data storage and processing to support enterprise AI initiatives.

• Cloud services expansion: Revenue from first-party and marketplace cloud storage services grew 32% year over year. Management credited new integrations with platforms like Azure, Google Cloud, and Amazon Web Services, which broadened NetApp’s addressable market and attracted new customers.

• All-flash array strength: All-flash storage revenue rose 9% year over year, with adoption benefiting from last year’s product refresh and increased demand for high-performance storage, particularly in AI and data analytics workloads.

• Cyber resilience as a differentiator: Enhanced offerings, such as the NetApp Ransomware Resilience Service, helped win new business—including a major contract with an Asian life insurance provider—by addressing customers’ needs for robust data protection and recovery.

• Keystone storage-as-a-service growth: Keystone saw a 76% year-over-year increase, reflecting a broader industry shift toward flexible, consumption-based storage models and growing customer familiarity with cloud-like procurement for enterprise infrastructure.

Drivers of Future Performance

NetApp’s outlook is shaped by its focus on scaling high-growth segments like cloud, AI, and storage-as-a-service, while navigating macro uncertainty and potential cost headwinds.

• Cloud and AI-led growth: Management expects continued expansion in cloud storage and AI infrastructure, citing strong customer interest in new solutions like AFX and AIDE. The company believes this will help offset weaker demand in traditional segments, particularly in the U.S. public sector.

• Margin sustainability and cost control: CFO Wissam Jabre noted that stable component pricing, a favorable revenue mix, and disciplined operational spending are expected to support high non-GAAP margins. However, he acknowledged that volatility in commodity prices, such as NAND memory, could pose risks to future profitability.

• Keystone and subscription acceleration: The company is prioritizing growth in its subscription-based Keystone offering, which management views as a key driver of recurring revenue. This strategy is expected to gradually shift NetApp’s business toward higher-value, predictable streams, though management remains cautious about macroeconomic and public sector uncertainties.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) the pace of AI and cloud storage adoption and whether NetApp can sustain momentum in large-scale enterprise deals, (2) the normalization of U.S. public sector demand as government procurement activity resumes, and (3) the continued growth trajectory of Keystone and subscription-based services. Ongoing enhancements to data security and integration with hyperscaler platforms will also be critical indicators of competitive positioning.

NetApp currently trades at $116.90, up from $111.48 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free for active Edge members).

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