NetApp Q3 Earnings Call Highlights

27 Feb 2026, 00:06 by Doug Wharley · The Cerbat Gem

NetApp (NASDAQ:NTAP) reported fiscal third-quarter 2026 results that management said reflected accelerating growth and record profitability, while also outlining how the company is responding to “unprecedented inflation” in memory prices.

Quarterly results topped guidance as revenue grew 4%

CEO George Kurian said NetApp delivered “another strong quarter,” with revenue of $1.71 billion, up 4% year-over-year. Excluding the divested Spot business, which contributed $25 million of revenue in the year-ago quarter, revenue was up 6%.

CFO Wissam Jabre said results exceeded the midpoint of revenue guidance and the high end of EPS guidance. Non-GAAP earnings per share came in at $2.12, up 11% year-over-year. Jabre added that foreign exchange provided a favorable tailwind of about 2 percentage points to year-over-year revenue growth.

By segment, hybrid cloud revenue was $1.54 billion, up 5% year-over-year, which Jabre attributed to product, support, and Keystone. Public cloud revenue was $174 million, flat year-over-year; excluding Spot, public cloud revenue grew 17% year-over-year, driven by first-party and marketplace storage services.

All-flash hit $1 billion; AI offerings AFX and AIDE gained early traction

Kurian said NetApp’s unified data platform is being used for AI innovation, infrastructure modernization, cyber resilience, and cloud transformation. He said about 300 customers selected NetApp in Q3 to prepare data for AI and serve as the storage foundation for AI initiatives, up from 200 in the prior quarter.

Kurian highlighted two newer AI-focused offerings announced in October: AFX and the AI Data Engine (AIDE). AFX, described as a disaggregated storage system purpose-built for AI, shipped in the quarter and “secured significant” early wins in industries including neocloud, financial services, and semiconductor. Kurian said the company was “ahead of our expectations” in the first quarter of AFX availability, though he cautioned it is a new architecture requiring customer qualification and that NetApp is “not predicting a ramp” like the earlier C-Series product line.

AIDE is intended to simplify AI data workflows with data discovery, curation, policy-driven guardrails, and real-time vectorization for generative AI. Kurian said the early access program has engaged customers across semiconductor, media and entertainment, financial services, and IT services, and that AIDE is expected to be generally available in Q4.

On the core product portfolio, Kurian said All Flash Array revenue grew 11% year-over-year to a record $1.0 billion, implying an annualized run rate of $4.2 billion. In Q&A, Kurian provided additional color on the AI adoption cycle, saying NetApp is seeing acceleration in wins and that, within the quarter’s AI mix, roughly 60% of activity was in data preparation/readiness and 40% was in production training or inferencing use cases.

Public cloud strategy focused on expansion and AI connectivity

Kurian said NetApp’s first-party relationships with hyperscale cloud providers are a differentiator, and management emphasized growth in first-party and marketplace services. Adjusted for the Spot divestiture, Kurian said public cloud services revenue increased 17% year-over-year, with first-party and marketplace services up 27%.

He added that about half of Q3 revenue driven by new first-party and marketplace customers came from customers new to NetApp, underscoring cloud’s role in customer acquisition. Kurian also cited competitive displacement examples involving Azure NetApp Files and AWS FSx for NetApp ONTAP, including use cases tied to performance, operational simplicity, and ransomware-related protections such as immutable copies.

During the quarter, NetApp introduced Amazon S3 access points for Amazon FSx for NetApp ONTAP, intended to connect AWS AI and analytics services directly with NetApp data. NetApp also announced a public preview of an Object REST API on Azure NetApp Files. Kurian said a multinational manufacturing company selected FSxN as a high-performance data layer for AI workloads on AWS and is leveraging S3 support to apply AI to large existing file-based datasets without re-platforming.

Jabre said public cloud gross margin was 85.1%, up about 2 percentage points sequentially and about 9 percentage points year-over-year. He reiterated the company’s long-term public cloud gross margin range of 80% to 85%, noting Q3 was at the high end and that management was “comfortable operating at this level for now.”

Margins, cash flow, and capital returns; product margin pressured by mix and market buys

NetApp posted non-GAAP gross margin of 71.2%, up 50 basis points year-over-year, which Jabre attributed to public cloud gross margin expansion. Operating income was $533 million, up 8% year-over-year, and operating margin was 31.1%, up 1.1 percentage points.

Hybrid cloud gross margin was 69.6%, down 1.8 points sequentially, as product gross margin fell 4.2 points to 55.3%. Jabre said the decline was driven primarily by unfavorable revenue mix and, to a lesser extent, market purchases made to meet unexpectedly higher demand for certain products. Support gross margin was 92.5% and professional services gross margin improved sequentially to 31.3%, which Jabre linked to higher Keystone revenue mix.

Cash flow from operations was $317 million and free cash flow was $271 million. NetApp returned $303 million to shareholders, including $200 million in share repurchases and $103 million in dividends, with a dividend of $0.52 per share. Jabre said cash and short-term investments totaled $3.0 billion versus $2.5 billion in gross debt, resulting in a net cash position of $522 million.

Guidance raised for the year as NetApp navigates memory-price inflation

For Q4, Jabre guided to revenue of $1.87 billion, plus or minus $75 million; at the midpoint, he said this implies 8% year-over-year growth, or 9% excluding Spot. NetApp expects Q4 gross margin of 69.5% to 70.5%, operating margin of 30.5% to 31.5%, and non-GAAP EPS of $2.21 to $2.31.

For the full fiscal year 2026, NetApp expects revenue of $6.772 billion to $6.922 billion (midpoint $6.847 billion), reflecting 4% growth year-over-year, or 5% excluding Spot. The company expects gross margin of 70.7% to 71.7%, operating margin of 29.3% to 30.3%, and EPS of $7.92 to $8.02. Jabre also guided for other income and expense to result in about a $24 million net expense and a tax rate of 20.2% to 21.2%.

Management spent significant time discussing rising component costs, particularly memory. Kurian said NetApp has raised pricing and “will do so again as needed,” while working with customers and partners on agility, coordinating with multiple suppliers, and leveraging a broader portfolio that includes hybrid flash arrays. In Q&A, Kurian said the company raised prices at the start of the quarter and that customers “budget in dollars,” with NetApp offering multiple architectures and consumption options. Executives said they were not experiencing supply shortages at this time and did not see broad-based lead time extensions, though they noted the environment remains dynamic.

About NetApp (NASDAQ:NTAP)

NetApp, Inc (NASDAQ: NTAP) is a data management and storage company that delivers hybrid cloud data services for applications and data. Founded in 1992 as Network Appliance and rebranded as NetApp in 2008, the company is headquartered in Sunnyvale, California. NetApp’s offering focuses on enabling organizations to store, manage, protect and move data across on-premises environments and major public clouds.

The company’s product portfolio centers on the ONTAP data management software and a range of storage systems and services built around it.