Morgan Stanley revisits NetApp stock price target after earnings

AI deployments are driving caller orders and supporting growth, but investors privation to spot whether NetApp tin crook that momentum into sustained net maturation portion managing higher representation costs.

AI retention request lifts FY2027 outlook

Morgan Stanley's biggest takeaway from the 4th was that AI enactment is translating into meaningful infrastructure spending.

NetApp reported astir 500 AI and data-preparation wins during the quarter, helping gross emergence 12% year-over-year to $1.95 billion, portion all-flash array gross climbed 18% to $1.2 billion. Morgan Stanley said the increasing fig of AI deployments suggests endeavor spending is moving beyond experimentation and into accumulation environments.

That momentum helped enactment FY2027 gross guidance of $7.325-$7.575 billion, which indicates stronger maturation than galore investors expected. Morgan Stanley noted that request appears progressively tied to endeavor AI adoption and hybrid unreality deployments alternatively than impermanent spending trends.

Additionally, Morgan Stanley noted that a increasing information of AI wins are coming from customers outside NetApp's installed base, suggesting the institution is gaining vulnerability to new AI workloads alternatively than simply benefiting from refresh cycles.

Investors present privation to spot whether AI-related retention spending continues to broaden done FY2027. If all-flash maturation remains beardown and AI deployments proceed expanding crossed endeavor customers, NetApp's astir caller 4th could people the opening of a larger spending cycle.

Memory ostentation clouds near-term borderline way

While the gross outlook improved, Morgan Stanley believes margins stay the largest risk to the story.

NetApp guided for FY2027 gross margins to beryllium astir 68.5% to 69.5%, beneath the 70.5% delivered successful the fiscal 4th quarter. Management pointed to elevated NAND and DRAM costs arsenic the superior headwind and said merchandise gross borderline should bottommost successful the fiscal 4th fourth earlier gradually improving done the year.

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Morgan Stanley noted that NetApp is taking a much measured pricing attack than immoderate competitors. Rather than afloat offsetting ostentation done terms increases, the institution is prioritizing gross nett dollars and lawsuit relationships, which could permission margins nether unit adjacent arsenic request improves.