NTAP · Q1 2026 Earnings

Cautious

NetApp

Reported August 27, 2025

30-second summary

30-second take: NetApp delivered Q1 FY2026 revenue of $1.559B (+1.2% YoY), non-GAAP EPS of $1.55, and non-GAAP operating margin of 25.7% — an in-line print landing in the upper half of last quarter's guide on revenue and EPS and beating on operating margin. The underlying mix degraded: all-flash decelerated to +6% YoY, down from FY2025's mid-teens growth, and product gross margin took 5+ points of YoY pressure from flash component costs. Management held the FY2026 guide ($6.625–6.875B, +3% at midpoint) but introduced a Q2 revenue guide of $1.615–1.765B implying only +2% YoY — a step down from the +3% full-year framing that pushes the burden of recovery into 2H. The AI narrative is the offset: 125 AI/data-lake deals in Q1 vs. 50 a year ago, with the workload mix now 45% training / 35% RAG-and-agentic / 20% data lakes.

Headline numbers

EPS

Q1 FY2026

$1.55

Revenue

Q1 FY2026

$1.56B

+1.2% YoY

Gross margin

Q1 FY2026

70.4%

Free cash flow

Q1 FY2026

$0.62B

Operating margin

Q1 FY2026

19.8%

Key financials

Q1 FY2026

Metric	Q1 FY2026	YoY	Q4 FY2025	QoQ
Revenue	$1.56B	+1.2%	$1.73B	-10.0%
EPS	$1.55	—	$1.93	-19.7%
Gross margin	70.4%	—	68.9%	+150bps
Operating margin	19.8%	—	20.1%	-30bps
Free cash flow	$0.62B	—	$0.64B	-3.1%

Guidance

Guidance is issued for both next quarter and the full year. Both may appear below.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Revenue	Q1 FY2026	$1.455 billion - $1.605 billion	$1.559 billion	in-line	Beat
EPS (non-GAAP)	Q1 FY2026	$1.48 - $1.58	$1.55	in-line	Beat
Consolidated Gross Margin	Q1 FY2026	71% - 72%	71.1%	in-line	Beat
Operating Margin	Q1 FY2026	25% - 26%	25.7%	in-line	Beat

New guidance

Metric	Period	Guide	YoY
Revenue	Q2 FY2026	$1.615 billion - $1.765 billion	2% YoY at midpoint
EPS (non-GAAP)	Q2 FY2026	$1.84 - $1.94	—
Consolidated Gross Margin	Q2 FY2026	70.5% - 71.5%	—
Operating Margin	Q2 FY2026	28% - 29%	—

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
Operating Margin	FY2026	28.8% - 29.8%	28.8% - 29.8%	0 bps (reaffirmed)	Raised

Product revenue

Q1 FY2026

Segment	Q1 FY2026	YoY
Hybrid Cloud	$1.398B	+1.2%
Public Cloud	$0.161B	+1.3%
All-Flash Array	$0.893B	+6.0%

Management tone

Macro caution → AI urgency → Bottoming margin call → AI as production deployment (Q1 FY2026)

The "Q4 is the bottom" margin promise has now been quietly extended a third time. Two quarters ago management said Q3 FY2025 would be the product margin bottom. Last quarter it was revised to Q4 FY2025, then to Q1 FY2026 being "more or less in line with Q4." This quarter CFO Wissam Jabre said "Q1 was very much the low point in terms of the product margin… we expect product margin to improve from here… gradually for the rest of the year." The use of "gradually" and the Q2 non-GAAP gross margin guide of 70.5–71.5% (essentially flat with Q1's 71.1%) suggest the call is once again being made with a one-quarter cushion — the implied recovery is now a 2H story, contingent on flash component cost normalization that has been forecasted for three quarters running.

AI moved from "early production" to "operating model." Last quarter the framing was 150 Q4 deals at 5x YoY growth from a small base. This quarter management quantified the workload mix for the first time — 45% training, 35% RAG/agentic, 20% data lakes — and said "enterprises are beginning to explore and deploy inferencing workloads, shifting demand from proof of concept to transformational initiatives." The 125 Q1 deals vs. 50 prior-year Q1 means the YoY pace remains roughly 2.5x. Notable: management still has not sized AI revenue in dollars, a year after introducing the multiplier disclosure.

The all-flash narrative tonally degraded for the first time in this coverage window. Last quarter all-flash was the centerpiece — 280bps of share gain, +14% YoY, "two-thirds of Hybrid Cloud." This quarter the CFO acknowledged "fiscal 25, all flash grew by mid-teens, and we just saw some dynamics in Q1" — a markedly defensive framing for what had been the cleanest bull point. The +6% revenue growth is unmistakably weaker; the question into Q2 is whether this is a Q1-specific air pocket driven by U.S. public sector and EMEA softness (per management's attribution) or a maturing share-gain phase.

Public cloud target range was raised — the one unambiguous upgrade in tone. The CFO said "we are increasing the long-term gross margin target range for this business to 80 to 85%" (from 75–80%), with Q1 already at the high end of the prior band (80.1%). This is a structural margin signal that has nothing to do with cyclical flash costs and reinforces that the strategic storage-services line (+33% YoY) and ex-Spot Public Cloud (+18% YoY) are becoming a different kind of asset than the reported +1.3% headline suggests.

Public sector and EMEA weakness moved from "tariff/policy uncertainty" to specific geographic and segment callouts. Q4 framed it as low-teens of revenue with 75–80% federal exposure and the DOGE process expected to wrap. This quarter management specifically called out U.S. public sector budget uncertainty and EMEA softness in UK and Germany large enterprise — i.e. the friction did not wrap up as anticipated, and it is now showing up in two geographies rather than one. The hedge that public sector relies on a "typical strong Q2 spend" puts the entire 2H acceleration thesis on a single seasonal data point.

Recurring themes management leaned on this quarter:

AI infrastructure monetization accelerating with 125+ deals in Q1 vs 50 prior yearAll-flash array market leadership and install base conversion (45% of systems now all-flash)Cloud storage services revenue growth of 33% YoY as competitive differentiationLocalized geographic softness (U.S. public sector, EMEA) offset by Americas enterprise strengthProduct margin pressure from flash component cost increases with gradual recovery expectedKeystone subscription service traction (unbilled RPO up 40% YoY) as bridge to on-premises as-a-service

Risks management surfaced:

U.S. public sector budget uncertainty and delayed deployment; reliance on Q2 typical strong spendFlash component cost inflation impacting product gross margins (5+ percentage points YoY pressure)Macro-related customer spending caution persisting despite AI urgency tailwindEMEA localized softness in UK and Germany large enterprise segmentsForeign exchange headwinds (though noted as immaterial to guidance)

Answers to last quarter's watch list

Q1 FY2026 revenue vs. the $1.455–1.605B guide. Printed at $1.559B, +$29M above midpoint. This sits in the upper half of the range but below the $1.56B "material cushion" threshold flagged last quarter, and the reaffirmed-not-raised FY2026 guide confirms management does not view this as upside to bank. Status: Continue monitoring

All-flash trajectory. AFA revenue grew +6% YoY to $893M, a clear deceleration from FY2025's mid-teens growth. Management attributed the softness to U.S. public sector and EMEA weakness and said it does not expect this to continue for the rest of the year. The annualized run-rate figure of $3.6B is a mechanical ×4 of quarterly revenue and moves with seasonality, so the meaningful signal is the YoY growth rate. Status: Continue monitoring

Public Cloud ex-Spot growth. Reported Public Cloud printed +1.3% YoY at $161M, but ex-Spot grew +18% YoY and the first-party/marketplace cloud storage services line grew +33%. The strategic core is materially outpacing the headline. Status: Resolved positively (ex-Spot)

Product gross margin in Q1 vs the flat-to-Q4 commitment. Q1 non-GAAP gross margin printed at 71.1%, with management characterizing Q1 as "the low point" and attributing >5 points of YoY product margin pressure to flash component costs. The Q2 gross margin guide of 70.5–71.5% sits essentially flat with Q1, meaningful sequential improvement is once again being pushed into 2H. Third consecutive deferral of the inflection. Status: Resolved negatively

AI deal count and revenue disclosure. 125 AI/data-lake deals in Q1 vs ~50 in prior-year Q1 — sustained acceleration, with new workload-mix disclosure (45% training / 35% RAG/agentic / 20% data lakes). However, NetApp still did not size AI revenue in dollars. Status: Continue monitoring

US public sector commentary. Management explicitly flagged "U.S. public sector budget uncertainty and delayed deployment" as a risk, with the recovery thesis now riding on "typical strong Q2 spend." The DOGE-wrapping-up framing from last quarter did not materialize as a tailwind. Status: Resolved negatively

What to watch into next quarter

Q2 FY2026 revenue vs. the $1.615–1.765B guide. Midpoint +2% YoY. A print below $1.66B implies the back-half acceleration to hit the +3% FY2026 guide requires 2H YoY growth of +4–5%, which would force a guide cut. A print above $1.72B is the first real signal the FY2026 guide has cushion.

All-flash revenue re-acceleration. With AFA at +6% YoY in Q1 vs. FY2025's mid-teens, watch whether Q2 returns toward double-digit YoY growth as management implied, or whether the U.S. public sector / EMEA drag persists.

Product gross margin sequential trajectory. Q2 non-GAAP gross margin guide is 70.5–71.5% vs Q1's 71.1%, so a print above 71.5% would be the first genuine inflection after three quarters of deferred bottoming. A print at 71.0% or below — the fourth missed inflection — would force a reset of the FY2026 28.8–29.8% operating margin range.

Whether FY2026 revenue guide gets cut at Q2. Management explicitly said "should we have another strong quarter, we'll tell you more about the full year at the end of Q2." The reaffirmation despite a beat means a Q2 miss almost certainly triggers a downward revision; a Q2 in-line print likely produces a narrowed range rather than a raise.

Public Cloud reported growth crossing +5% YoY. With Cloud Storage Services at +33%, ex-Spot at +18%, and the new 80–85% margin target range, the segment story is structurally improving — but reported growth at +1.3% means the non-strategic component is still a material drag. Watch for the cross above +5% as the headline inflection point.

Federal/public sector bookings in the seasonally strong Q2. Management is now relying on the "typical strong Q2 spend" pattern. If federal bookings do not show YoY growth in Q2, the public sector thesis breaks and the FY2026 guide loses its second-half cushion.

Sources

NetApp Q1 FY2026 press release / 8-K exhibit, filed with SEC: https://www.sec.gov/Archives/edgar/data/1002047/000095017025111700/ntap-ex99_1.htm
NetApp Q1 FY2026 earnings call commentary (prepared remarks and Q&A)

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