Raymond James downgraded Netapp, Inc. (NTAP) to a Market Perform rating (From Outperform) and removed their $83.00 price target from the intelligent data company due to challenges in the storage market in the near term and Raymond James’ view that product margin has reached its peak.
NetApp (NASDAQ:NTAP)'s business heavily relies on Hybrid Cloud, constituting approximately 45% of sales. Raymond James' estimates closely align with the consensus, reducing the justification for an Outperform rating.
Analysts at Raymond James anticipate potential downside risk to Hybrid Cloud revenue in CY24. Their model predicts a 5.6% segment growth, surpassing Gartner's forecast of 2.2%. Analysts maintain a positive outlook for CY25, expecting new products to drive growth.
NetApp may have a significant opportunity in Enterprise AI programs, but Raymond James doesn’t expect an opening to appear until CY25, and quantifying it remains uncertain.
“We are optimistic regarding NetApp’s new product cycles and the AI related prospects as tailwinds for CY25.” Analysts wrote in a note.
The concept of data gravity suggests a need for high-performance storage as enterprises use AI to enhance business agility and productivity. NetApp's new AFF-C series, based on QLC flash, offers exposure to the mid-tier enterprise storage market, and Raymond James is optimistic about its potential in AI and ML use cases.
Raymond James’ estimates remained unchanged with a FY24 sales estimate of $6,238B and an EPWS estimate of $6.17. FY25 sales and EPS estimates are also unchanged at $6,450B and $6.49 respectively.
Shares of NTAP are down 1.58% in pre-market trading Tuesday morning.