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NetApp (NTAP -17%) slumps to 10-month lows today after missing revenue expectations in Q3 (Jan) and lowering its FY25 (Apr) revenue outlook. The stock had been consolidating throughout 2025 following an over +30% rally in 2024. As a storage and data services provider for enterprises, NTAP has benefited nicely from the surging AI-related demand as the technology demands considerable storage needs.

However, during Q3, NTAP had a few stumbles. CEO George Kurian mentioned that its top-line growth of just 2.2% yr/yr to $1.64 bln was disappointing, adding that it resulted from inconsistent execution revolving around a few deals that slipped out of the quarter. Since then, NTAP has instituted a higher level of deal scrutiny on deal progression through the pipeline, deploying tighter controls on closing plans. The company anticipates these actions will enhance its execution, noting that a number of the slipped deals from the quarter have already closed.

Nevertheless, the damage was done, prompting a sharp pullback today and dwarfing the encouraging trends witnessed during Q3.

• While impacted by poor sales executive, NTAP's C-series capacity flash arrays, Storage GRID systems, and all-flash block systems still each delivered growth in Q3, supporting a 10% jump in all-flash array sales and 1% bump in Hybrid Cloud segment revenue (comprises ~90% of total revs). A notable standout from the quarter was Keystone, NTAP's storage-as-a-service offering, which touted almost 60% growth yr/yr.
• AI continues to underpin healthy demand as customers search for a unified and structured view of their data, the centerpiece of NTAP's business. During Q3, the company's AI business exceeded internal expectations, boasting over 100 infrastructure and data lake (a centralized storage system) wins, which spanned geographies and sizes. NTAP's customers include well-known AI players, from Microsoft (MSFT) to NVIDIA (NVDA).
  • In the quarter, NTAP continued to strengthen its ties with Big Tech, announcing innovations to various services used by Amazon (AMZN), Google (GOOG), and MSFT.
• Unfortunately for NTAP, guidance displaced these positives. The company anticipates FY25 revs of $6.49-6.64 bln, down from $6.54-6.74 bln and translating to Q4 revs of $1.65-1.80 bln, the midpoint falling short of consensus. NTAP also lowered its adjusted EPS outlook for the year, targeting $7.17-7.27, down from $7.20-7.40. Management mentioned that FX headwinds clipped $0.08 off its earnings forecast and $30 mln from its prior revenue forecast.

In an environment where AI demand continues to run hot, NTAP's deflating guidance is sending investors packing today. Even though management attempted to alleviate concerns, noting that it has already initiated the proper changes to avoid lackluster sales execution in the future, market participants are not taking any chances today, selling now and asking questions later.