NetApp at Baird Conference: Cloud and AI Drive Growth

On Wednesday, 04 June 2025, NetApp (NASDAQ:NTAP) presented at the Baird Global Consumer, Technology & Services Conference 2025, outlining its strategic transformation over the past 30 years. The company highlighted record-breaking financial results, driven by its focus on all-flash solutions and cloud services. Despite macroeconomic uncertainties, NetApp remains optimistic about its refreshed product portfolio and market share gains.

Key Takeaways

• NetApp achieved record revenues and profits in FY’25, driven by all-flash and cloud services.
• The company closed over 50 AI-related deals in Q4, marking a fivefold increase in AI business.
• Partnerships with AWS, Azure, and Google Cloud are pivotal for NetApp’s cloud strategy.
• NetApp plans to grow operating expenses at half the rate of revenue.
• The company is poised to capitalize on the growing demand for AI-driven solutions.

Financial Results

• Total revenue and all-flash revenue reached record highs in FY’25.
• Support and public cloud revenues also set new records.
• Non-GAAP gross profit, operating profit, and EPS all hit record levels.
• Public cloud gross margin ended the year at 79.3%, with expectations to exceed 80% in FY’26.
• Earnings grew 12% year-over-year.

Operational Updates

• NetApp gained almost three points of market share in the all-flash market in 2024.
• Block storage market share increased by nearly one point.
• The cloud services segment is growing over 40%, driven by first-party and marketplace offerings.
• New sales capacity is being added throughout 2026 to support growth.

Future Outlook

• NetApp anticipates continued market share gains and revenue growth above the market rate.
• Gross margins are expected to rise gradually due to price increases and a shift to all-flash solutions.
• The company plans targeted R&D investments in AI and flash technologies.
• Enterprise AI demand is projected to outpace model training needs.

Q&A Highlights

• NetApp’s partnerships with hyperscalers like AWS, Azure, and Google Cloud leverage the ONTAP software.
• Key revenue drivers include all-flash, cloud services, block storage, and enterprise AI.
• The company embeds AI into its products and uses AI internally to enhance efficiency.
• Despite macroeconomic concerns, NetApp remains confident in its product portfolio and market position.

For a more in-depth understanding, readers are encouraged to refer to the full transcript below.

Full transcript - Baird Global Consumer, Technology & Services Conference 2025:

Colin Liet, Baird Analyst, Baird: Okay. Great. Can everyone hear me? Great. Hello.

My name is Colin Liet. I’m on the Internet and interactive entertainment team here at Baird working on our call with Sebastian. Today, we’re happy to have here with us NetApp’s VP of Investor Relations, Chris Newton. And just to start us off, she’s gonna have a safe harbor to read for us.

Chris Newton, VP of Investor Relations, NetApp: Hey, everyone. Today’s discussion may include forward looking statements regarding NetApp’s future performance, which are subject to risk and uncertainty. Actual results may differ materially from the statements made today for a variety of reasons described in our most recent 10 ks and 10 Q filed with the SEC and available on our website at www.netapp.com. We disclaim any obligation to update information in any forward looking statement for any reason.

Colin Liet, Baird Analyst, Baird: Okay. Great. So, I guess if you wouldn’t mind, just for people that either new to the story or or not as familiar with with NetApp, you know, could you kinda provide an an overview of the company and maybe bring us up to speed on where we’re at today?

Chris Newton, VP of Investor Relations, NetApp: Sure. So NetApp is a thirty year old company, and we’ve really transformed the business over the course of those thirty years. At the heart of what we do is deliver value through a software solution called ONTAP. It does data and storage management. And the focus of ONTAP has always been how do we enable our customers to do more with less resources, greater efficiency, find greater time to value.

Historically, we’ve monetized ONTAP through the sale of an integrated hardware software stack initially through a disk based system and more recently through all flash systems. And most recently, we’ve started monetizing ONTAP through the public cloud as well. So, we have partnerships with all the leading public cloud providers who make ONTAP available to their customers through a branded solution native to the public cloud, helping us reach a wider and wider scope of customers and put more data under the management purview of ONTAP. We break down our business into two segments, a hybrid cloud segment, which is largely the traditional sale, a CapEx sale of product and associated support with a growing portion of storage as a service and then a public cloud segment that includes our relationship with hyperscalers as well as some additional public cloud services available through marketplace. We traditionally sell, we generally sell to large enterprises.

Our history has largely been on the file or unstructured side of the business. So, selling file and then unified storage appliances to large enterprises. And in the past five years, and we included a chart of this in our most recent earnings materials, we’ve really transformed our business away from a legacy hard disk drive business, which five years ago made up the majority of our revenue to today, a business that’s largely driven by our public cloud services and our all flash solutions. And together those businesses make up more than two thirds of the total revenue. In FY ’25, which is the year we just closed and we just announced our earnings last Thursday, We set a number of records.

So records for total revenue, all flash revenue, support revenue, public cloud revenue. We set non GAAP gross and operating profit records. We set records for non GAAP operating margin and non GAAP EPS. So as we look into FY ’26, we feel we’re in a really good position. We have a fully refreshed product portfolio.

We’re entering the year on the back of strong market share gains. And we feel like the market is more and more moving to us where customers recognize the value they can get by unifying their storage and bringing high levels of data management to bear against it.

Colin Liet, Baird Analyst, Baird: Okay, great. Yeah. So a lot to dig in there. Very comprehensive, really appreciate that. But you talked about the cloud infrastructure and hyperscalers, and I’m sure we’re all aware of the CapEx figures this year.

If you combine the top four, it’s about $250,000,000,000 this year, which is a lot of money. You spoke about how you have partnerships with those companies. So with NetApp partnering with people such as GCP within Google, AWS, Amazon, Azure, could you just kind of explain the nature of these partnerships? And then if you wouldn’t mind, why would these companies be, you know, purchasing from you? Know, they have all the money in the world, you know, what’s yeah.

Chris Newton, VP of Investor Relations, NetApp: Yeah. So just a point of clarification. They’re not actually for our partnerships. They’re not buying from us. They have looked to leverage the ONTAP software value into their clouds and make that available to their customers.

So the clouds have been really great at block storage and at object storage. But the one area where they historically faced some challenges was in the area of high performance file services. And for a lot of enterprises that are looking to do cloud migrations, high performance file services are really important. So, close to ten years ago now, we made ONTAP available in the marketplace of all the leading hyperscalers starting with AWS and then expanding beyond that. About five years ago, we entered into an arrangement with Microsoft Azure.

They had some customers that were migrating to the cloud and they thought they could benefit from ONTAP. To speed time to deployment, we deployed our systems in the Azure cloud and stood up a service called Azure NetApp Files. That’s been very successful for both companies. We’ve since entered into arrangements with Amazon where we’re deploying our ONTAP software directly on the infrastructure in the AWS cloud available in every AWS region. And then most recently we’ve added a relationship with Google.

So, that’s first. So, the Amazon services Amazon FSX for NetApp ONTAP and then with Google most recently for Google Cloud NetApp Volumes. That service is all based on ONTAP and so for customers that use NetApp both on premises in the cloud, they can have a consistent operating environment regardless of where their data resides and really think logically about how they wanna manage that data and bring it to bear for different use cases. For new to NetApp customers, Consuming NetApp in the cloud is a much easier entry point, right? You’re buying capacity on a per month basis and that’s a lot easier to do than say do a big CapEx expenditure.

So, we see cloud as a great way to attract new customers who can learn the value of ONTAP and the cloud providers themselves have a significantly broader reach when it comes to sales than we do. So, we’re able to reach a broader set of customers both because of their bigger reach, but then also customers who don’t have data centers and wouldn’t be able to consume our traditional CapEx systems can benefit from NetApp in the cloud and customers who are smaller may not have a dedicated IT organization where it would make sense for them to use something like NetApp on premises can also benefit from NetApp in the cloud. So we bring them the value of our robust enterprise tested high performance file services, and then we benefit in a broader reach for customers.

Colin Liet, Baird Analyst, Baird: Got it. Yes. Very helpful. This that will probably play into the next question here. But kind of we start at the top of the P and L, work our way down here.

How do you think about the drivers of revenue for this upcoming fiscal year and kind of beyond that? And if I could throw in a second part, how do these drivers kind of influence the growth over the next fiscal year with different segments? You talked about with the hyperscaler integration. So that be very helpful.

Chris Newton, VP of Investor Relations, NetApp: Yeah, sure. So we held an Analyst Day exactly a year ago today. And at that investor day, we laid out four primary vectors to drive top line growth. The first is all flash. That market is benefiting from some secular technology transitions away from hard disk drives in the mid range to flash based technology.

And so we’re seeing growth there. Also, we recently entered the block only market. I’ll give a little bit more on that in a second. But that is a share gain opportunity for us as we displace legacy players in that space. Cloud that we talked about.

And then still in very, very early innings, the rise of enterprise AI. So I’ll talk a little bit about each of them. So I’ll start it with all flash. As I mentioned, the market’s going through a secular transition in the mid range, the high end of the market where people are willing transitioned to all flash and we have a good business addressing that portion of the market. We’re seeing this good shift in the mid range.

We’re not only converting our existing customers to our newer C Series QLC based all flash product, but we’re also able to displace legacy players because often in their environments, the shift from their former hard disk environment to their new flash environment involves a fairly heavy lift and shift migration, which opens up the field for competitors. So we’re seeing good competitive displacement as well as just general market growth in the all flash market. As I started at the beginning, what we sell is ONTAP. ONTAP by its nature is a unified storage environment. We got our start in the file space, but in the early 2000s, we added unified to expand to block, most recently object.

However, there is a very large portion of the storage market that only requires block services and they don’t need the value that unified brings. That means they’re not willing to pay for unified. So we brought forward a version of ONTAP that is optimized for block only. That gives us the right product features at the right price point to go after that big block market in a much more optimized and efficient manner. So we’re seeing good displacement of legacy players there.

And according to IDC in calendar twenty four, we gained a point of share in the block space, which is a lot for a market that is mature and has been fairly stable for some time. I feel like I beat the cloud growth vectors to death, but I will add that our first party and marketplace services have been growing in excess of 40% almost the entirety of last fiscal year. And we expect continued very strong growth there. And then finally, enterprise AI. A lot of the focus of AI has really been on model training.

But now it’s time to take those large language models and put them to use in enterprise to recognize revenue and efficiency gains. We think this is gonna be a pivotal year for AI as companies look to deploy AI centers of excellence, putting those LLMs to use in inferencing. And so we expect to see continued uptick. We’ve been servicing the boring traditional AI market for some time now doing things like machine learning, analytics, industrial AI. Gen AI is still in the very early days, But we did say on our recent earnings call that in Q4 we saw about a fivefold increase in the level of business around AI.

We closed over a 50 AI or data lake modernization deals in the quarter. So we see a lot of growing excitement from enterprise customers and an urgency to attack the AI market and take advantage of it in our customer base. So that’s a really exciting thing that we think will start to contribute more meaningfully as we step through ’26 and beyond.

Colin Liet, Baird Analyst, Baird: Got it. Yeah. So you kind of touched on this a little bit, talking about the competitive landscape, you talked about on your last earnings call, you had some share gains. Where specifically are you seeing those share gains from? And then on the competitive front, on the landscape, where are you kind of seeing that going?

What about the trend over the next Where do you think you’re taking share within that?

Chris Newton, VP of Investor Relations, NetApp: Yeah. So the overall storage market is like a low single digit growth market, but we’ve really worked hard to pivot our revenue streams towards the higher growth aspects of that market. So most notably, the all flash market, is growing kind of in the upper single digits. According to IDC, we gained almost three points of share in the all flash market in calendar twenty four. That was more than any other company that they track.

They do a pretty good job at tracking everyone and came at the expense of all the traditional storage players that you can think of. We also gained almost a point of share in the block space. Again, really coming from those more traditional players. Looking ahead, we expect to continue to gain share and grow above market as we see customers continuing to show preference for NetApp, the solutions we bring and the ability to build an intelligent data infrastructure leveraging NetApp technology.

Colin Liet, Baird Analyst, Baird: Got it. Very helpful. If anybody has any questions, feel free to put up your hand or e mail the placard in front of you. Otherwise, we’ll continue with the Q and A. Just kind of moving down the P and L a little bit, let’s talk about gross margins.

So for a hardware company, relatively high gross margins, I think it’s hovering around the low 70s. So what are the puts and takes on those throughout the year? And then are there any headwinds that investors may have missed to gross margins that may have been overlooked or anything to think about?

Chris Newton, VP of Investor Relations, NetApp: Sure. So, in our reported materials, we kind of give insight into four aspects of gross margin. So, the first is product gross margin. We’ve said, you know, our target range for product gross margin is in the mid to upper 50s. We’re right about there right now.

We think Q1 will be relatively flat quarter on quarter from Q4, and then we should see a gradual increase throughout the year. That’s driven by some recent list price increases that we made exiting in the latter part of last year, they should start to come through. And the continued shift of our portfolio to all flash which carries a slightly higher gross margin than our disk space systems. Then we have support gross margin. That’s been pretty steady at about 92.

I expect it’ll stay there. We have a professional services line professional and other services line. That’s relatively small in the mix of things, but we do expect gross margin to improve there driven by the growth of our Keystone storage as a service business. And then finally, our public cloud gross margin exited the year at 79.3%. We expect to see a continued increase from there going up above 80% as we move through fiscal twenty twenty six.

Colin Liet, Baird Analyst, Baird: Got it. And then kind of last question on the P and L, but earnings last year grew 12% year over year. What are the expectations for earning growth this upcoming year? Any macro factors baked into that? There’s a lot of stuff going on.

He really knows what’s gonna happen tomorrow or the next week. So anything around that would would be helpful.

Chris Newton, VP of Investor Relations, NetApp: Yeah. It’s an understatement to say there’s a lot going on in the macro. You know, it’s our intent to grow OpEx at a lower rate than revenue. Our CFO said on the call, right, over time you should expect OpEx to grow about half that of revenue. Never perfect in any given quarter, but right, you know, generally speaking that that’s sort of the relative relationship you should expect.

You know, we expect continued earnings growth driven by the leverage through this business model. We foresee revenue growth for FY twenty six, some gross margin expansion, all those four lines coming together do lend to a slight improvement in gross margin in our expectations and continued discipline at the OpEx line. We’re continuously looking at where we’re invested to make sure that we’re allocating resources against the biggest opportunities. We talked about adding quota bearing sales capacity as we move through ’26, which will help drive revenue. We talked about making targeted investments in R and D around AI and flash, innovating through software.

All that comes together to drive some operating leverage. And then I’m sure you’ll ask about this, but we are doing buybacks that reduce share count. So that helps accelerate the earnings growth.

Colin Liet, Baird Analyst, Baird: Yeah, that was my last question was about the capital allocation, but maybe we can dig it in

Chris Newton, VP of Investor Relations, NetApp: until a little

Colin Liet, Baird Analyst, Baird: steal your Yes, no worries. I wouldn’t be a good Internet analyst if I didn’t ask about AI. So we have to address it. So yes, it’s become a pretty core theme at every So what is NetApp’s strategy to capture the shift towards AI? Any opportunities that you’re looking at?

And just over the next one to three years, what is kind of your vision on AI within NetApp?

Chris Newton, VP of Investor Relations, NetApp: Yeah. So we look at AI in three ways. How do we use AI internally to drive efficiency and increase revenue opportunities? I can tell you that, you know, I have a target to make myself and my team more efficient through the use of AI. I know I’m not alone.

We also look at how do we embed AI into our products to help make our customers more efficient. We have things like predictive data analytics. So, for hybrid flash arrays, we can look to predict what the next data might be to improve the performance of a hybrid flash array. For example, we also have some caching capabilities to help cache colder data into the cloud and re cache it back on prem when we think it’ll be used next. And then finally AI is a huge market opportunity for us.

And in fact, we think in this fiscal year, we’ll actually see the storage demand for enterprise AI inferencing and rag technologies to outpace that of model training. So I think this is gonna be a really pivotal AI year in the storage market. Still very early innings and and I think a lot of opportunity ahead, but we have a number of customers deploying NetApp for AI today. We see companies looking to modernize and unify their data estates. You know, lot of studies show that a data scientist probably copies data like eight to 10 times, which is an incredibly inefficient use of a very expensive resource.

So we see companies looking to, you know, pool their data in a more unified fashion to bring it to bear in AI workloads. And so that’s been a good business for us. Then we see companies looking to build AI centers of excellence where they’re leveraging large language models against their enterprise unstructured data to gain insight and efficiencies. And then finally, we’re also selling to tier two cloud providers who are looking to deploy AI as a service for their customers. And for NetApp, the entirety of our portfolio is brought to bear in these AI opportunities.

So for companies looking to deploy AI centers of excellence, they’re probably looking at our all flash systems to get high performance storage in those environments. For companies that are looking to modernize and unify across their infrastructure, they’re probably looking at our object storage and unified storage flash systems. And for CSPs, we see companies looking to both leverage our cloud services in conjunction with AI tools in the cloud as well as build their own clouds leveraging our products. So I think it really will benefit across the board in everything we do. A lot of the early AI enterprise AI activity has been in the cloud while companies are experimenting.

And so NetApp services plus the AI tools that are native to the cloud providers make a great solution to test and trial. And then as those projects become fruitful and companies wanna deploy them in production, bringing that back on premises where the huge pool of enterprise data sits is probably the next step, and we can work with them with our unstructured and unified data. So I think it’s a great opportunity for us. Really excited about the AI future.

Colin Liet, Baird Analyst, Baird: Yeah. No. It’s very interesting. I could ask you a lot of questions about especially without in enterprise AI. So, yeah, it’s it’s all interesting.

If we kinda step back big picture, you know, what are you guys seeing in the macro? I know we talked about it a little bit with with earnings, but, you know, what is what’s currently baked into the guide? You know, and then over, you know, any puts and takes on how this might affect, you know, your guidance over the next year or so?

Chris Newton, VP of Investor Relations, NetApp: Yeah. So I would say, you know, the macro is uncertain. There’s probably increased uncertainty compared to where we were six months ago. We’ve embedded in our guidance, right, kind of some potential customer caution around that uncertainty. Additionally, we’re a big supplier to the US federal government.

So we’ve included some caution around our US public sector business and we’re the number one supplier in a number one market share vendor in a lot of European countries. And so there have been some concerns around GDP of certain manufacturing or export driven European countries. So we’ve embedded some caution there. I would say you’ll see that show up in the near term, but that’s somewhat mitigated by the overall confidence we have in the fully refreshed product portfolio, expected continued share gains, increased sales capacity, and the customer conversations we’re having around big data modernization and AI deals. So, you know, that’s sort of a cautionary cautious environment, but we’re incredibly confident about the value that we’re bringing to customers.

Colin Liet, Baird Analyst, Baird: Got it. Yeah. It was probably going to be changing next week anyway. No, that’ll

Chris Newton, VP of Investor Relations, NetApp: Tweet by tweet.

Colin Liet, Baird Analyst, Baird: That’s right, tweet by tweet. Kind of from an investor’s point of view, after earnings, do you think there’s been anything that investors may have not understood from the last earnings call? Or do think there’s anything that people as of late have been misunderstanding about NetApp misunderstanding about NetApp that, you know, maybe could be, you know, conveyed differently that you’re how do you think about that?

Chris Newton, VP of Investor Relations, NetApp: Yeah. I I think there are two big things. I think the investment community really understands it. The sell side might be a little behind, but I think the buy side really does understand what’s happening. So one, the nature of our revenue transformation, I think is really important.

Right? We’ve successfully managed to go through some significant technology transitions, not only see our customer base through those technology transitions, but gain share from competitors through that. Those newer revenue streams in flash and cloud are have carry a higher gross margin. So it’s higher quality revenue in addition to going through the revenue transition. So I think that’s really important.

And as we said on our call, we think that that the fact that we’ve gone through that transition will enable us to deliver sustained growth into FY twenty six and beyond. I think the other thing that the street sometimes misses is the importance of our cloud business. Right? We’ve had admittedly some fits and starts, but we’ve really honed the services in our cloud portfolio. We’ve doubled down on the unique and highly differentiated first party and marketplace services that we have and where we’re seeing really strong growth.

And we expect to see good growth from that business with expanding gross margins. So, really adding to the overall gross profit of the company. And I think that’ll be a material thing as we step through ’26.

Colin Liet, Baird Analyst, Baird: Got it. No, that’s helpful. So, I guess we have two minutes left or a little bit under two minutes. So, you know, last question is, you know, with these investors here, what do you think that we should take away with from this, you know, presentation to be incremental buyers, you know, as we kind of leave?

Chris Newton, VP of Investor Relations, NetApp: Sure. So, for anyone who followed NetApp five years ago, I think fundamentally we are a changed business. And so, you can forget about the history and really look to the future. I think that’s probably the biggest takeaway that I would offer anyone. The market is moving to NetApp and you can see it in the market share data.

Customers are choosing us more and more to prepare them for an AI world of the future. NetApp can help customers build an intelligent data infrastructure that unifies their data, enables them to manage it logically, provides high levels of cyber resiliency, security, data protection, all things that I think become more and more important to enterprises as we move into a heavier and heavier AI world.

Colin Liet, Baird Analyst, Baird: Well, that’s great. Well, thank you everybody, and thank you Chris from NetApp.

Chris Newton, VP of Investor Relations, NetApp: Thanks for having me.

Colin Liet, Baird Analyst, Baird: Yep. Thank you.

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