NetApp shares fall 9% as AI-driven beat masks back-half slowdown

NetApp Inc. reported fiscal first-quarter revenue of $2.03 billion, up 30 percent from a year earlier and about $190 million above the $1.84 billion consensus, yet shares slid roughly 9 percent in after-hours trading as investors weighed a deceleration implied in the company's raised full-year outlook.

"We delivered a record-setting start to the year, exceeding guidance on every metric," Chief Executive Officer George Kurian said on the earnings call. "We are also seeing a clear structural improvement in the underlying demand environment."

Non-GAAP earnings per share came in at $2.58, up 66 percent year over year and 47 cents above the $2.11 consensus, while operating margin expanded 6.1 percentage points to 31.9 percent. All-flash array revenue climbed 47 percent to $1.31 billion, public cloud revenue rose 28 percent to $206 million, and the company closed roughly 350 AI and data lake modernization deals. Billings reached $2.06 billion, up 36 percent, with remaining performance obligations of $5.65 billion, up 14 percent.

Management raised full-year revenue guidance by $650 million to a midpoint of $8.1 billion, implying 17 percent growth, and lifted EPS guidance to $9.73-$10.03. But the revised outlook implies second-half growth moderating to roughly 9-10 percent from the 26 percent adjusted pace in Q1, a gap that drew repeated analyst scrutiny. The quarter also benefited from an extra week that added about $65 million, or roughly four points of growth, and from accelerated purchases by a small number of large customers.

The selloff puts the stock near $165, down from a $180.68 close and well below its 52-week high of $209.06, even as the company holds a net cash position of $1.1 billion. Product gross margin of 54.6 percent fell 150 basis points sequentially on higher component costs, though CFO Wissam Jabre said pricing actions are flowing through faster than in prior cycles and lifted the full-year product margin outlook slightly. Investors will watch the NetApp INSIGHT conference in September for updated AI demand signals and whether the back-half deceleration proves conservative or a sign that Q1 strength pulled forward future orders.

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