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    NTAP
    Earnings call· Oct 2025(Q2 FY26)

    NetApp, Inc. NTAP

    Nov 25, 2025 Source

    Executive summary

    NetApp Q2 FY26 — Strong Profitability and AI Momentum

    NetApp delivered strong Q2 FY26 results, exceeding profitability expectations with record gross and operating margins, driven by growth in All-Flash and Public Cloud offerings. The company is seeing significant momentum in AI solutions and cyber resilience, despite an unsettled macro environment and near-term U.S. Public Sector headwinds. Management remains confident in outgrowing the market by leveraging its differentiated data platform.

    Highlights

    7

    • Revenue of $1.71 billion, up 3% year-over-year (4% excluding divested Spot business).

    • Non-GAAP gross margin of 72.6%, a Q2 record and above guidance range.

    • Non-GAAP operating margin of 31.1%, an all-time high, up 2.4 percentage points year-over-year.

    • Non-GAAP EPS of $2.05, an all-time high, growing 10% year-on-year.

    • All-Flash Array revenue grew 9% year-over-year to $1 billion.

    • First-party and marketplace cloud storage services revenue increased 32% year-over-year.

    • Closed approximately 200 AI infrastructure and data lake modernization deals.

    Concerns

    2

    • Expected softness in U.S. Public Sector (USPS) revenue, leading to Q3 revenue guidance implying flat sequential growth, below historical seasonality.

    • Potential for component pricing volatility to create headwinds for product gross margin into fiscal year 2027.

    Guidance & targets

    10
    CategoryTargetConfidence
    Revenue
    $1.69B +/- $75M
    high materiality
    High
    Gross Margin
    72.3% to 73.3%
    medium materiality
    High
    Operating Margin
    30.5% to 31.5%
    medium materiality
    High
    EPS
    $2.01 to $2.11
    high materiality
    High
    Revenue
    $6.625B to $6.875B
    high materiality
    High
    Gross Margin
    71.7% to 72.7%
    high materiality
    High
    Operating Margin
    29.5% to 30.5%
    high materiality
    High
    Other Income and Expenses
    approximately negative $50M
    low materiality
    High
    Tax Rate
    20.2% to 21.2%
    low materiality
    High
    EPS
    $7.75 to $8.05
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Hybrid Cloud
    Revenue driven by product, support, and Keystone. Gross margin up 1.4 percentage points sequentially.
    Keystone revenue growth: 76% YoYProduct gross margin: 59.5% (up 5.5 percentage points sequentially)Support gross margin: 92.1%Professional services gross margin: 30.3% (up 40 basis points sequentially)
    		$1.53B3%—71.4%
    Public Cloud
    Revenue growth driven by strong demand in first-party and marketplace storage services. Gross margin up nearly 3 percentage points sequentially and over 9 percentage points year-over-year.
    Revenue growth (excluding Spot): 18% YoY
    		$171M2%—83%

    Operational metrics

    17
    Total Revenue
    $1.71Bup 3% YoY
    Q2 FY26

    Exceeded midpoint of revenue guidance range.

    Non-GAAP EPS
    $2.05up 10% YoY
    Q2 FY26

    Exceeded high end of EPS guidance range and marked an all-time high.

    Non-GAAP Gross Margin
    72.6%up 1.5 percentage points sequentially
    Q2 FY26

    Set a Q2 record and exceeded guidance range.

    Non-GAAP Operating Margin
    31.1%up 2.4 percentage points YoY
    Q2 FY26

    Marked an all-time high.

    Capital Returned to Shareholders
    $353M
    Q2 FY26

    Total capital returned during the second quarter.

    Dividend per share
    $0.52
    Q2 FY26

    Paid in Q2.

    Diluted Share Count
    202Mdecreased by 8M shares or 4% YoY
    Q2 FY26

    Used for EPS calculation.

    Cash and Short-Term Investments
    $3B
    Q2 FY26

    Balance at the end of the quarter.

    Gross Debt Outstanding
    $2.5B
    Q2 FY26

    Balance at the end of the quarter.

    Net Cash Position
    approx. $528M
    Q2 FY26

    Calculated from cash and short-term investments minus gross debt.

    All-Flash Array Revenue
    $1Bup 9% YoY
    Q2 FY26

    Reflects strong customer engagement and interest.

    Installed Base Systems under Active Support Contracts (All Flash)
    46%
    Q2 FY26

    Percentage of installed base that is All Flash.

    AI Infrastructure and Data Lake Modernization Deals Closed
    approx. 200vs. 125 last quarter
    Q2 FY26

    Across diverse geographies, industries, and use cases.

    First-Party and Marketplace Cloud Storage Services Revenue Growth
    32%YoY
    Q2 FY26

    Rapid expansion in highly differentiated services.

    Keystone Revenue Growth
    76%YoY
    Q2 FY26

    Keystone continues to show great progress.

    Public Cloud Customers Net New to NetApp
    roughly half
    ongoing

    Consistent pattern over a very long period of time.

    FX Impact on Revenue Growth
    1 percentage pointfavorable YoY
    Q2 FY26

    Favorable to revenue growth year-on-year, immaterial relative to guidance.

    Industry KPIs

    8
    MetricValueDetails
    Capital return FCF$353MUSD
    Gross margin drivers59.5%%
    Services peripheral attach76%%
    Component supply constraintssecured
    Installed base refresh runway46%%
    Capacity roadmap qualificationAFXplatform
    Ai server orders revenue backlogapprox. 200deals
    Revenue mix by end market segment70%%

    Orderbook & backlog

    3
    Deferred Revenue$4.45BQ2 FY26 end

    up 8% YoY (7% in constant currency)

    Remaining Performance Obligations (RPO)$4.9BQ2 FY26 end

    up 11% YoY

    Unbilled RPO$456MQ2 FY26 end

    up 39% YoY

    Key indicator of future Keystone revenue.

    Product announcements

    8
    ProductTypeDetails
    AFXlaunch
    NetApp AI Data Engine (AIDE)launch
    Keystone for Enterprise AIexpansion
    Azure NetApp Files Capabilitiesupdate
    Google Cloud NetApp Volumes Block Storageexpansion
    Amazon FSX for NetApp ONTAP Support for Amazon Elastic VMware Serviceexpansion
    NetApp Ransomware Resilience Servicelaunch
    StorageGRID Latest Versionupdate

    Deals & partnerships

    4
    Global Semiconductor Capital Equipment ManufacturerSelected NetApp to unify its enterprise AI data foundation across on-premises and cloud environments.

    Hybrid multi-cloud data visibility and secure governance drove confidence in compliance and operational efficiency for AI workloads. Enabled creation of a single searchable view of corporate knowledge across millions of documents, emails, and engineering datasets.

    Leading Cloud-Based Media Production CompanySelected FSXN as its standard for file and block storage.

    FSXN delivered cost savings through storage efficiency, high availability, superior multi-tenancy, and intelligent caching. The company believes FSXN provides a competitive advantage in optimizing cloud storage and enhancing performance.

    Major Asian Life Insurance CompanyChose NetApp for its mission-critical private cloud environment, replacing its long-standing storage vendor.

    Ransomware protection was a top priority, and NetApp's ability to provide strong cyber resiliency for critical workloads was a key factor in the decision.

    Leading Financial Services CompanySelected StorageGRID to modernize its legacy Hadoop environment.

    StorageGRID addressed next-gen AI workload requirements with capabilities for a hybrid architecture, data durability, global name space, robust security, and automated backup/disaster recovery.

    Risks & headwinds

    3
    Unsettled Macro Environmentnear-term

    unquantified

    Mitigation: Focus on leveraging alignment to customers' top data initiatives and competitive advantage.

    U.S. Public Sector HeadwindsQ3 FY26 and potentially beyond

    Expected softness and sub-seasonality in Q3 revenue guidance

    Mitigation: Viewed as temporary; expect business to return to normal levels. Being cautious with full-year guidance due to lack of line of sight on recovery.

    Component Pricing VolatilityFY27

    Potential headwind into fiscal year 2027 from rising commodity prices (e.g., NAND)

    Mitigation: Secured supply commitments and pricing through end of FY26. Operational discipline, focus on driving gross profit dollars, and ability to consider pricing adjustments to pass through costs.

    What to watch in Q3 FY26

    5

    U.S. Public Sector Revenue Recovery

    Next quarter / H2 FY26
    CurrentBelow seasonality due to shutdown
    TargetReturn to normal levels

    Why it matters

    Significant impact on overall revenue growth and guidance, as it was a key reason for not flowing through the Q2 beat to full-year guidance.

    We're expecting our U.S. public sector business to be slightly below seasonality given, obviously, the most recent shutdown takes a little bit of time for government to reopen. Having said that, we view these as temporary and long term, we expect that business to get back to normal levels.

    Q&A highlights

    6

    How is NetApp managing the component environment regarding pricing and constraints, and what is the visibility on pricing dynamics for the gross margin outlook?

    Wissam Jabre stated NetApp has good visibility on component pricing until the end of FY26 and no supply disruptions. Product gross margin is expected to remain stable. The mix shift towards high-margin cloud (80-85% GM) and Keystone businesses is favorable. The company will consider pricing adjustments if commodity prices rise significantly, as they typically pass through such costs.

    “If we are faced with higher commodity prices relative to where we are today, we will always consider our pricing. Our commodity prices are typically passed through for us, and we don't have an issue passing them through.”

    asked by Aaron Rakers · answered by Wissam Jabre

    2 min read6 chapters

    Detailed Narrative

    01

    AI Strategy and Innovation

    NetApp unveiled major advancements at NetApp Insight, including AFX, an ultra-scalable extreme performance disaggregated storage platform certified for demanding AI workloads, and the NetApp AI Data Engine (AIDE) for simplified data discovery and pipeline scaling. These innovations aim to accelerate AI outcomes by integrating with leading AI platforms and offering zero-copy caching and native cloud connectivity. The company closed approximately 200 AI infrastructure and data lake modernization deals in Q2, demonstrating growing momentum.

    02

    Public Cloud Expansion

    The company expanded native AI capabilities in Azure and Google Cloud, adding to existing AWS support. New functionalities include block storage in Google Cloud NetApp volumes, single file restore in Azure NetApp Files, and Amazon Elastic VMware service support in Amazon FSX for NetApp ONTAP. These enhancements broaden the addressable market, drive new customer acquisition, and position NetApp for continued growth in its first-party and marketplace cloud storage services, which saw 32% year-over-year revenue increase.

    03

    All-Flash Momentum

    All-flash array revenue grew 9% year-over-year to $1 billion in Q2, reaching an annualized run rate of $4.1 billion. Approximately 46% of the installed base systems under active support contracts are now All Flash. This growth is attributed to strong customer engagement and interest in NetApp's unified and block-optimized all-flash storage portfolio, benefiting from recent system refreshes and strong performance in high-performance offerings.

    04

    Cyber Resilience Enhancements

    NetApp launched the ransomware resilience service for both structured and unstructured data, designed to proactively detect data breaches in real-time and provide isolated environments for safe, clean data recovery. This industry-leading capability is helping NetApp win new customers and displace competitors, as evidenced by a major Asian life insurance company choosing NetApp for its mission-critical private cloud environment due to strong cyber resiliency.

    05

    Keystone and StorageGRID Progress

    Keystone storage-as-a-service for Enterprise AI continues its strong growth trajectory, increasing 76% year-over-year, and now includes AFX and AIDE under a single subscription for elastic scaling and usage-based billing. Additionally, the latest version of StorageGRID was announced with new capabilities to enhance AI initiatives and modernize data infrastructure, leading a financial services company to select it for modernizing its legacy Hadoop environment.

    06

    Component Environment and Gross Margin Outlook

    Management has secured supply commitments and pricing through the end of fiscal year 2026, with product gross margins expected to remain relatively stable to Q2 levels. While the long-term target for product gross margin is mid-to-high 50%, the overall gross margin is expected to benefit from the favorable mix shift towards higher-margin cloud and Keystone businesses. The company is prepared to consider pricing adjustments if commodity prices rise significantly in the future.

    AI-generated summary of the company’s earnings call. Not investment advice.