NTAP · Q2 2026 Earnings
BullishNetApp
Reported November 25, 2025
30-second summary
30-second take: NetApp delivered Q2 FY2026 revenue of $1.705B (+3% YoY) at the midpoint of guidance, but the print was carried by record non-GAAP operating margin of 31.1% (+210bps above guide), non-GAAP EPS of $2.05 ($0.11 above the top of guide), and non-GAAP gross margin of 72.6% (+110bps above the top of guide). All-flash re-accelerated to +9% YoY ($1.0B, $4.1B annualized) and AI deals nearly doubled QoQ to ~200 from 125. Management raised the FY26 EPS guide to $7.75–$8.05 (+$0.15 midpoint) and lifted FY26 gross and operating margin guides by 70bps each — but held FY26 revenue at $6.625–$6.875B and guided Q3 revenue to $1.615–$1.765B (flat-to-down sequentially, +5% YoY ex-Spot), explicitly citing US public sector / government-shutdown headwinds. The story: profitability inflected hard, the top-line acceleration is still parked in 2H.
Headline numbers
EPS
Q2 FY2026
$2.05
Revenue
Q2 FY2026
$1.71B
+3.0% YoY
Gross margin
Q2 FY2026
72.0%
Free cash flow
Q2 FY2026
$0.08B
Operating margin
Q2 FY2026
23.4%
Key financials
Q2 FY2026| Metric | Q2 FY2026 | YoY | Q1 FY2026 | QoQ |
|---|---|---|---|---|
| Revenue | $1.71B | +3.0% | $1.56B | +9.4% |
| EPS | $2.05 | — | $1.55 | +32.3% |
| Gross margin | 72.0% | — | 70.4% | +160bps |
| Operating margin | 23.4% | — | 19.8% | +360bps |
| Free cash flow | $0.08B | — | $0.62B | -87.4% |
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 | Q2 FY2026 | $1.615 billion - $1.765 billion | $1.705 billion | in-line | Beat |
| EPS | Q2 FY2026 | $1.84 - $1.94 | $2.05 | +$0.11 above guide | Beat |
| Gross Margin | Q2 FY2026 | 70.5% - 71.5% | 72.0% | +50-150 bps above guide | Beat |
| Operating Margin | Q2 FY2026 | 28% - 29% | 31.1% | +210 bps above guide | Beat |
New guidance
| Metric | Period | Guide | YoY |
|---|---|---|---|
| Tax Rate | FY2026 | 20.2% - 21.2% | — |
| Revenue | Q3 FY2026 | $1.615 billion - $1.765 billion | 5% |
| EPS | Q3 FY2026 | $2.01 - $2.11 | — |
Changes to prior guidance
| Metric | Period | Prior guide | New guide | Δ | Result |
|---|---|---|---|---|---|
| EPS | FY2026 | $7.60 - $7.90 | $7.75 - $8.05 | +$0.15 high end, +$0.15 low end | Raised |
| Gross Margin | FY2026 | 71% - 72% | 71.7% - 72.7% | +70 bps high end, +70 bps low end | Raised |
| Operating Margin | FY2026 | 28.8% - 29.8% | 29.5% - 30.5% | +70 bps high end, +70 bps low end | Raised |
Reaffirmed unchanged this quarter: Revenue ($6.625 billion - $6.875 billion)
Product revenue
Q2 FY2026| Segment | Q2 FY2026 | YoY |
|---|---|---|
| Hybrid Cloud | $1.534B | +3.0% |
| Public Cloud | $0.171B | +2.0% |
| Product | $0.788B | +2.6% |
| Support | $0.647B | +1.9% |
Management tone
Macro caution → AI urgency → Margin bottoming (deferred 3x) → Margin inflection delivered + AI as operating model
The margin bottoming call finally held, after being pushed out three times. A year ago management said Q3 FY25 would be the product margin bottom. Then it was Q4 FY25. Then Q1 FY26. Last quarter's Q2 guide of 70.5–71.5% signaled yet another deferred inflection. This quarter Q2 non-GAAP gross margin printed 72.6% — +110bps above the top of the range — and the FY26 gross margin guide was raised by 70bps to 71.7–72.7%. From the release: "Both operating margin and EPS surpassed expectations and marked all time highs." The "all-time highs" framing — plural — is the credibility recovery move after a year of margin deferrals.
AI moved from "operating model" framing to a structured deal-volume narrative with quantified workload mix. Last quarter management introduced workload-mix disclosure (45% training / 35% RAG/agentic / 20% data lakes) on 125 Q1 deals. This quarter the deal count nearly doubled QoQ to ~200, and the mix was disclosed more granularly in Q&A: ~45% data prep/lake, 25–30% training/fine-tuning, remainder RAG/inferencing. The directional shift is meaningful — training share fell while data prep/lake share held — consistent with enterprises moving past initial model training and into ongoing data infrastructure spend. Management's framing in the release: "Our massive installed base of unstructured data, advanced data and metadata movement services, industry-leading data security, and unique hybrid multi-cloud capabilities make us the clear choice for enterprise AI." The "clear choice" categorical language is a marked escalation from the "early production deployment" language of two quarters ago.
Public sector commentary inverted in posture. Last quarter management was relying on the "typical strong Q2 spend" pattern and characterizing public sector friction as temporary. This quarter, after Q2 evidently held (the EPS beat alone implies the seasonal pattern at least partly delivered), the Q3 guide explicitly cites government-shutdown headwinds as the reason for sequentially flat revenue. So the narrative moved from "Q2 will save us" to "Q3 is the new soft quarter, but it's short-term." That a Q3 headwind didn't trigger an FY26 revenue cut suggests management has compensating strength elsewhere — but the public-sector overhang is still being managed quarter-by-quarter rather than resolved.
Product mix shift framed as the structural margin story for the first time. From the release: "All flash and public cloud address growth markets and carry higher gross margins, made up 70% of Q2 revenue." The 70% disclosure is new and important — it reframes margin expansion from cyclical (component costs normalizing) to structural (mix shift to higher-margin lines). Combined with the public cloud long-term gross margin target raised to 80–85% last quarter and Q2 cloud margins at 83% (per Aaron Rakers Q&A), the margin story is no longer about flash NAND cost relief.
Recurring themes management leaned on this quarter:
Risks management surfaced:
Q&A highlights
Aaron Rakers · Wells Fargo
How is the company managing component pricing and supply constraints? What visibility exists on pricing dynamics for gross margin outlook, and how long do strategic supply commitments extend?
Management has locked in component prices with visibility through end of fiscal year. Product gross margin expected to remain stable at mid-to-high 50% range. While NAND pricing could present headwinds into fiscal 27, the company can pass through commodity price increases quickly if needed. Supply chain team is managing efficiently with no disruptions seen.
Eric Woodring · Morgan Stanley
What are the drivers of 60% product gross margins currently and whether margins can expand from these levels? Is the company at peak product margins?
Current 59%+ margins driven by mix and pricing, with costs roughly flattish year-over-year. Company targets mid-to-high 50% long-term margins; currently operating above target. No cap on product margins due to operational discipline. Mix tailwind expected from fast-growing cloud business at higher margins should help overall profitability.
Samit Chatterjee · JP Morgan
What are the trends in AI-related deal volume and mix? How is the new AFX solution performing with customers? Why is Q3 guidance flat/slightly down despite historical seasonal strength?
AI deal volume nearly doubled from 125 to 200 quarter-over-quarter. Mix stable at ~45% data prep/lake, 25-30% training/fine-tuning, remainder RAG/inferencing. AFX platform in customer qualifications with strong early interest but too early to attribute Q2 results to it. Q3 guidance reflects temporary U.S. public sector weakness from government shutdown; expected to normalize.
David Vogt · UBS
How does company balance sub-seasonal federal demand with recovery expectations for FY27? What is the purchasing commitment and inventory strategy?
Second half implied growth rate up excluding spot despite public sector headwinds. Non-U.S. public sector and flash business accelerated. Cloud and flash now 70% of business, providing growth offset. Company has good visibility through fiscal year end; will be opportunistic on purchasing commitments based on commodities and timing, supported by strong balance sheet.
Tim Long · Barclays
What is the impact of HDD supply tightness on business mix (QLC vs. TLC vs. HDD)? Can new cloud service offerings accelerate growth beyond current 30%+ cloud growth rate?
HDDs performed better than expected; company sees broad use cases for TLC, QLC, and HDDs without single technology displacing others. Cloud services (first-party and marketplace) growing north of 30% with Q2 representing highest quarterly incremental revenue in cloud business history. Company focused on scaling go-to-market for AI and data-intensive cloud workloads.
Answers to last quarter's watch list
What to watch into next quarter
Q3 FY2026 revenue vs. the $1.615–$1.765B guide. Midpoint $1.69B is flat-to-slightly-down sequentially. A print above $1.72B would confirm the government-shutdown headwind was indeed temporary and the FY26 revenue guide has been deliberately sandbagged. A print below $1.65B would validate the public-sector overhang as structural and put the FY26 revenue floor at risk.
All-flash YoY growth holding double digits. Q2's +9% needs to extend to the +10%+ range in Q3 to confirm Q1's +6% deceleration was an air pocket rather than the start of a maturing share-gain phase.
Non-GAAP gross margin vs. the 72.3–73.3% Q3 guide. A print above 73% would push the FY26 margin guide toward the high end of the raised range and likely drive another EPS raise. A print at or below 72.6% — flat with Q2 — would suggest the margin inflection has plateaued at current mix rather than continuing to compound.
AI deal count trajectory. ~200 deals in Q2 vs. 125 in Q1 vs. ~100 a year ago is roughly 2x sequential. Watch whether Q3 sustains the 175+ range or whether the QoQ doubling was AFX-launch driven. Management still has not sized AI revenue in dollars — that disclosure remains the cleanest forward signal.
FY26 revenue guide at Q3. After two quarters of holding the revenue guide through beats and now a raised EPS framework, a Q3 in-line print likely produces the first FY26 revenue narrowing. A Q3 miss would force the second-half acceleration narrative to break — already a tight thesis given the government-shutdown drag.
Public Cloud reported growth. Reported +2% in Q2 vs. +1.3% in Q1 means the non-strategic drag is still material despite first-party/marketplace cloud services at +32%. Watch whether reported Public Cloud crosses +5% YoY in Q3 — the inflection point at which the headline finally tracks the strategic story.
Sources
- NetApp Q2 FY2026 press release / 8-K exhibit, filed with SEC: https://www.sec.gov/Archives/edgar/data/1002047/000119312525297164/ntap-ex99_1.htm
- NetApp Q2 FY2026 earnings call commentary (Q&A as captured in extraction inputs)
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