NTAP Stock Rallies on Strong Q2 Earnings Beat and Robust Guidance Revision

NetApp Inc. (NTAP) delivered impressive second-quarter results that sent shares climbing 6% in pre-market trading. The data storage company’s fiscal 2026 Q2 performance exceeded expectations across both top and bottom lines, with the company revising its full-year guidance upward.

Earnings and Revenue Performance

The company posted non-GAAP earnings of $2.05 per share, surpassing the Zacks Consensus Estimate by 8.5% and demonstrating a robust 9.6% year-over-year increase. This result outpaced management’s previous guidance range of $1.84-$1.94 per share.

On the revenue front, NTAP generated $1.71 billion in quarterly sales, representing 3% growth compared to the prior-year period. The top line exceeded consensus expectations by 1.1%, landing comfortably within the company’s guided range of $1.615-$1.765 billion.

What Drove the Stock up

Management attributed the strong performance to several key drivers:

• AI Infrastructure Momentum: Accelerating demand for artificial intelligence-focused storage solutions gained significant traction during the quarter
• Cloud Service Expansion: Growth across first-party and marketplace channels contributed meaningfully to results
• All-Flash Portfolio Strength: The company’s flash-based storage solutions continued to gain market adoption

Segment Performance Breakdown

NTAP operates through two primary business divisions:

The Hybrid Cloud segment generated $1.5 billion in quarterly revenue, up 3% year-over-year. Within this segment, product revenues reached $788 million (51.4% of segmental total), climbing 2.6% annually. Support contract revenues totaled $647 million (42.1%), increasing 1.9% compared to the prior year. Professional services contributed $99 million (6.5%), showing stronger growth of 13.8%.

The Public Cloud segment posted $171 million in quarterly revenues, advancing 2% year-over-year. This division encompasses cloud-based storage services, automation tools, and infrastructure monitoring capabilities.

Geographically, the Americas accounted for 51% of total revenues, followed by Europe/Middle East/Africa at 33% and Asia Pacific at 16%. The company’s go-to-market strategy generated 23% of revenues through direct channels, with indirect/partner channels contributing 77%.

Key Operational Metrics

All-Flash Array revenues demonstrated particular strength, jumping 9% to $1 billion during the quarter. This performance implies an annualized run rate of approximately $4.1 billion for the company’s flagship product line.

Total billings rose 4% year-over-year to $1.65 billion, while deferred revenues and financed unearned services swelled 8.4% to $4.5 billion. Remaining performance obligations (RPO)—a key indicator of future revenue visibility—reached $4.9 billion.

Margin Expansion and Operating Efficiency

Non-GAAP gross margin expanded to 72.6%, a 60 basis point improvement versus the year-ago quarter. The Hybrid Cloud segment maintained a gross margin of 71.4% (compared to 71.8% previously), while the Public Cloud division showed marked improvement, reaching 83% from 73.8% in the prior-year quarter.

Operating expenses declined 1.7% to $707 million, demonstrating disciplined cost management. This efficiency gain combined with revenue growth to produce an 11.6% year-over-year increase in non-GAAP operating income to $530 million. The corresponding non-GAAP operating margin reached 31.1%, up from 28.6%.

Cash Position and Capital Allocation

NetApp exited the quarter with $3 billion in cash, cash equivalents, and investments, down slightly from $3.32 billion in the prior quarter. Long-term debt remained stable at $2.486 billion.

Operating cash flow generated $127 million compared to $105 million in the year-ago quarter. Free cash flow totaled $78 million (4.6% margin), an improvement from $60 million (3.6% margin) previously.

The company returned $353 million to shareholders during Q2 through dividends and buybacks. NTAP also declared a quarterly dividend of 52 cents per share, payable January 21, 2026, to shareholders of record as of January 2.

Updated Outlook Signals Confidence

Management raised its full-year fiscal 2026 guidance, now expecting revenues in the range of $6.625-$6.875 billion (3% midpoint growth year-over-year). The company’s previous forecast called for $6.625-$6.875 billion in revenues, indicating stable guidance on the top line.

However, earnings guidance shifted meaningfully higher. Non-GAAP EPS is now projected between $7.75-$8.05, up from the prior view of $7.60-$7.90. Non-GAAP gross margin expectations improved to 71.7-72.7% from the prior 71-72% guidance, while operating margin increased to 29.5-30.5% from 28.8-29.8%.

For the third quarter, the company anticipates revenues between $1.615-$1.765 billion, with the consensus estimate at $1.69 billion. Q3 non-GAAP EPS is projected at $2.01-$2.11 against consensus of $1.89 per share.

Stock Performance Context

Over the trailing six-month period, NTAP shares have appreciated 8.6%, underperforming the Computer Storage Devices industry’s 76.7% gain. The Q2 earnings beat and raised guidance suggest the stock may be poised for accelerated momentum as the market recognizes the company’s exposure to artificial intelligence infrastructure investments and sustained cloud migration trends.