NetApp Q2 tops guidance with rising flash and cloud revenue
NetApp reported steady revenue growth in its latest quarter, breaking the $4 billion annual run rate level for flash array revenues and seeing its public cloud and AI deal rates increasing.
Revenues in the second fiscal 2026 quarter, ended October 24, 2025, were $1.71 billion, up 3 percent annually, beating its guidance of $1.64 billion ± $25 million. This was its eighth consecutive growth quarter. There was a $305 million GAAP profit, up 2 percent on the year. Excluding thedivested Spot business, total revenue was up 4 percent.
CEO George Kurian said: “Through strong execution and operational discipline, we delivered an outstanding second quarter with revenue growth driven by strong demand for our AI solutions, first-party and marketplace cloud storage services, and all-flash offerings.”
The company is doing again what it has successfully done in the past, which is to adopt new technology for its customers to maintain and grow its business. This approach has been exemplified with its ongoing data fabric idea in response to the three mainstream public clouds, and its adoption of all-flash arrays, where it is now the leading supplier. Most recently, the surge in AI is causing it to revise its ONTAP OS, bring in disaggregatedAFX arrays and the AI Data Engine (AIDE). It’s also adding in ransomware resilience services. NetApp is not going to be caught napping by new technology nor let either established or startup competitors invade its customer base.
Kurian added: “We remain confident that our visionary approach to a data-driven future will enable us to outpace market growth and capture additional market share.”
Financial summary
- Gross margin: 72 percent vs 71 percent a year ago
- Operating cash flow: $127 million vs $105 million a year ago
- Free cash flow: $78 million vs $60 million a year ago
- EPS: $2.05 vs year-ago $1.87
- Cash, cash equivalents & restricted cash: $2.08 billion vs $1.49 billion a year ago
- Gross debt outstanding: $2.5 billion
CFO Wissam Jabre said: “At the end of the quarter, cash and short-term investments were $3 billion, and gross debt outstanding was $2.5 billion, resulting in a net cash position of approximately $528 million.”
NetApp’s all-flash array revenue grew 9 percent year-over-year to $1.0 billion in the second quarter, for an annualized net revenue run rate of $4.1 billion. Approximately 46 percent of NetApp’s installed base systems under active support contracts are all-flash.
Public cloud revenue of $171 million in the second quarter was driven by first-party and marketplace storage services, which grew 32 percent year-over-year. All-flash and public coud, which address growth markets and carry higher gross margins, made up 70 percent of Q2 revenue. Billings of $1.65 billion in the second quarter grew 4 percent year-over-year, the eighth consecutive quarter of year-over-year growth.
Kurian noted: “Our gross margin set a Q2 record and exceeded our guidance range. Both operating margin and EPS surpassed expectations and marked all-time highs.” The public cloud business has a high gross margin and NetApp has NAND supply contracts to protect against sudden flash price rises. The company doesn’t see its gross margins dipping throughout the year.
Keystone storage-as-a-service subscription revenues exhibited growth of 76 percent year-over-year. Kurian talked about this in the earnings call, saying customers have “learned how to buy infrastructure and a consumption model from the cloud. And so we see that growing as a part of the overall business. You know, like all things, enterprise infrastructure is a very large market. And so it will grow as a part of that market. We’re excited to lean into that trend. I don’t think the whole market switches overnight.”
He added: “Roughly half of all our cloud customers are net new to NetApp,” and this provides a cross-selling and up-selling opportunity.
There were 200 AI deals in the quarter compared to 125 in the previous quarter, and 100 a year ago. Kurian commented: “Customers are spending on AI projects, on data infrastructure modernization to get ready for AI. They are implementing additional cyber resilience protection. We feel good about our alignment to customer spending.”
He expanded on the cloud and AI topic: “We have a really good set of tools for enterprise workloads on the cloud. The next big push is to capture the AI and data-intensive workloads on the cloud. And so you’ll see us bring innovations in the market. We already talked about some of them, and you’ll see a lot more of that over the next, you know, six to twelve months.”
An analyst asked about AI and storage growth: “Storage in general hasn’t really seen a big, big pickup from AI. So when do you think inference applications really start to create more data?”
Kurian answered: “As inferencing becomes a bigger part of the overall AI landscape, you will see more storage consumption… With regard to broader enterprise AI adoption, we’ve always believed it’s use case by use case. It’s not a horizontal technology that gets deployed. And so it really depends on the ROI from the use cases.”
Queried about enterprise AI competitors, he answered: “We are ahead of all the competition. Most of the competitors have, you know, kind of point products. They don’t have an integrated stack. They don’t have hybrid. They don’t have all of those pieces that we have.”
Next quarter’s outlook is for revenues of $1.690 billion ± $75 million, which is 3 percent year-over-year growth at the midpoint. The full FY 2026 outlook is still for revenues of $6.75 billion ± $125 million; again a 3 percent year-over-year rise.
