Morgan Stanley Downgrades NetApp Amid Declining Hardware Budgets
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Nov 27 2024
0mins
Should l Buy NTAP?
NetApp Inc's stock fell by 7.88% as it hit a 20-day low, reflecting broader market weakness with the Nasdaq-100 down 1.11% and the S&P 500 down 1.13%.
Morgan Stanley downgraded NetApp's rating from Equal-weight to Underweight, reducing its price target from $117 to $89. This downgrade highlights concerns over NAND price inflation and its potential negative impact on NetApp's future performance in storage solutions, amid a broader decline in hardware budgets expected to hit a 15-year low.
The downgrade signals a challenging outlook for NetApp as enterprises anticipate only 1% growth in hardware budgets for 2026, which could lead to revenue declines for IT companies. Investors may need to reassess their positions in light of these developments.
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Analyst Views on NTAP
Wall Street analysts forecast NTAP stock price to rise
19 Analyst Rating
6 Buy
13 Hold
0 Sell
Moderate Buy
Current: 101.180
Low
110.00
Averages
124.21
High
137.00
Current: 101.180
Low
110.00
Averages
124.21
High
137.00
About NTAP
NetApp, Inc. is an intelligent data infrastructure company combining unified data storage, integrated data, operational and workload services. It creates silo-free infrastructure, harnessing observability and AI to enable data management. Its operational and workload services provide continuous optimization of performance and efficiency for infrastructure and workloads through observability and AI. Its Hybrid Cloud segment provides a unified data storage portfolio of storage management and infrastructure solutions that helps customers modernize their data centers. Hybrid Cloud includes software, hardware, and related support, along with professional and other services. Its Public Cloud segment offers a portfolio of products delivered primarily as-a-service, including related support. This portfolio includes cloud storage, data services and operational services. These solutions and services are available in the public clouds, including Amazon AWS, Microsoft Azure, and Google Cloud.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Efficiency and Energy Savings: The new systems provide 1.5PB of storage in just 2U of space with a power efficiency of 63.7GBps per KW, ensuring high performance while optimizing rack density and reducing operational costs, helping enterprises achieve high performance within budget constraints.
- Support for Diverse Applications: The EF-Series storage systems are compatible with high-performance parallel file systems like Lustre and BeeGFS, accelerating HPC simulations and ensuring efficient GPU utilization, thereby providing competitive advantages for enterprises, especially in AI-driven innovation sectors.
- Market Demand Driven: As data volumes surge, the demand for high-performance storage continues to rise; NetApp's EF-Series systems simplify management and reduce complexity, enabling enterprises to quickly deploy and scale high-throughput, low-latency workloads, driving data transformation into business insights.
See More
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- AI Data Platform Launch: NetApp has introduced the AI Data Engine (AIDE) to address data discovery and governance challenges through an automatically created and continuously updated global metadata catalog, thereby accelerating AI innovation and enhancing business decision-making efficiency.
- Collaboration with NVIDIA: AIDE is tightly integrated with NVIDIA's AI Data Platform, supporting the latest NVIDIA technologies, enabling enterprises to optimize their AI data pipelines using enriched metadata without introducing additional security risks.
- Flexible Deployment Options: AIDE will support various server options and storage environments, including the newly released NVIDIA RTX PRO GPUs, ensuring enterprises can flexibly configure their infrastructure to meet diverse use cases.
- Expansion Capability Plans: AIDE is expected to add hybrid cloud support and multimodal data capabilities this summer, further enhancing its applicability in enterprise data governance and AI applications, helping customers better leverage their unstructured data.
See More
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- Rising Storage Costs: As companies like Snap and Google Photos phase out unlimited free storage, users are facing significant increases in storage fees, with Google Cloud's 200GB plan rising from $2.99 to $4.99 per month, heightening sensitivity to storage costs and impacting consumer spending decisions.
- Surge in User Complaints: Data from PissedConsumer.com indicates a continuous rise in consumer complaints regarding cloud storage issues in 2023, with many users feeling compelled to pay to retain access to personal files, highlighting a pressing demand for transparency and service quality in the market.
- Emotional Impact Intensifies: Experts note that users' emotional attachment to personal data makes the shift to paid cloud storage feel more painful, as many worry about losing their digital history, which affects their satisfaction and loyalty towards these services.
- Shifting Market Dynamics: The monetization of cloud storage services is altering consumer habits, with traditional photo storage methods being replaced by digital solutions, leading to a decline in related industries while simultaneously creating growth opportunities for emerging services.
See More
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- Revenue Growth Target: The company aims for an 8% revenue growth in Q4 2026, driven by strong momentum in AI and cloud services, highlighting its competitive position in a rapidly evolving market.
- Financial Performance: NetApp reported a non-GAAP EPS of $2.12, beating estimates by $0.06, with revenue of $1.71 billion exceeding expectations by $10 million, reflecting improved operational efficiency.
- Shareholder Returns: The dividend will be payable on April 22, with a record date of April 3 and an ex-dividend date also on April 3, ensuring timely returns for shareholders and bolstering investor confidence.
See More
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- Significant Revenue Growth: NetApp reported Q3 2026 revenue of $1.71 billion, a 4% year-over-year increase, with a 6% rise excluding the divested Spot business, highlighting the company's strong performance in cloud computing and AI.
- Surge in AI Customers: Approximately 300 customers have chosen NetApp as their AI data storage foundation, indicating the company's appeal in the AI market, particularly with the strong early momentum of its new AFX and AI Data Engine (AIDE).
- Record All-Flash Array Revenue: All-flash array revenue reached $1 billion, growing 11% year-over-year, while Keystone's storage-as-a-service revenue saw a remarkable 65% increase, further solidifying NetApp's leadership in the storage market.
- Optimistic Outlook: The CFO projected total revenue for fiscal year 2026 to be between $6.772 billion and $6.922 billion, reflecting an 8% year-over-year growth, showcasing the company's confidence in future growth, especially with ongoing investments in AI and cloud services.
See More
