NetApp (NTAP): Hold or Sell Ahead of Earnings? A Deep Dive into Valuation and Risks

NetApp (NTAP), a leader in hybrid cloud data management, has seen its stock underperform major tech indices in 2025. With a YTD decline of 6.87% as of July 2025, investors are questioning whether the stock is a hold or a sell ahead of its upcoming earnings. This analysis weighs recent performance, valuation metrics, and Zacks' predictive models to determine if NTAP is overvalued or poised for a rebound.

1. Recent Performance: Lagging Behind Tech Indices

NetApp's stock has struggled to keep pace with broader tech markets. While the NASDAQ Composite rose 6.6% and the S&P 500 Technology Sector gained 6.4% YTD, NTAP's total return (including dividends) fell to -6.87%.

Key factors driving underperformance:
- Short-term earnings concerns: NTAP's Q2 guidance cited delayed enterprise deals, tempering near-term revenue growth.
- Sector rotation: Investors shifted toward AI-driven stocks like NVIDIA and AMD, leaving traditional data infrastructure names like NTAP in the dust.

2. Valuation: PEG Ratio Suggests Fair Value, But Risks Linger

NetApp's PEG ratio of 0.94 (Price/Earnings divided by expected earnings growth) sits within industry norms, but its peers in hardware-focused sectors like semiconductors (PEG: 0.55) and computer processing hardware (PEG: 0.41) appear more undervalued.

Bull Case:
- NTAP's 4.85% revenue growth to $6.57B in fiscal 2025 and a 20.28% rise in earnings to $1.19B reflect solid execution.
- Strategic partnerships with NVIDIA and Google Cloud position it to capitalize on AI's data infrastructure demands.

Bear Case:
- Declining EPS estimates: Analysts have trimmed 2025 EPS forecasts by 5% over the past quarter, signaling skepticism about near-term profitability.
- Weak billings: A slowdown in enterprise spending (e.g., IT budgets constrained by macroeconomic pressures) could further drag margins.

3. Zacks' Neutral Stance: Why the “Hold” Rating Matters

Zacks rates NTAP a #3 (Hold), citing mixed momentum and below-average earnings revisions. Key concerns include:
- Revenue growth deceleration: NTAP's 4.85% revenue growth in 2025 trails its 5-year average of ~8%.
- Sector competition: Players like Dell Technologies and Pure Storage are aggressively pricing storage solutions, compressing NTAP's margins.

4. Risks to Consider

• Trade policy uncertainty: Tariffs on Canadian-based hardware components (e.g., from NTAP's supply chain) could inflate costs.
• AI adoption lag: While NTAP's AI partnerships are promising, enterprise AI spending remains uneven, with many companies still in pilot phases.

5. Investment Thesis: Hold for Now, but Monitor Earnings

Hold:
- NTAP's 15.22% upside to the $121.27 price target (based on analyst consensus) implies a rebound if Q3 earnings beat estimates.
- Its 40.6% gross margin and $1.19B in cash provide a buffer against near-term headwinds.

Sell:
- If NTAP misses Q3 revenue forecasts or provides further downside guidance, it could signal prolonged stagnation.
- A sustained NASDAQ outperformance by AI-focused peers might leave NTAP in a valuation vacuum.

Conclusion: A Delicate Balance Between Potential and Risk

NetApp's stock is a hold ahead of earnings, given its solid fundamentals and analyst optimism. However, investors must remain cautious: the PEG ratio's edge over peers and Zacks' neutral stance highlight a lack of catalysts to justify aggressive buying.

Actionable Advice:
- Hold NTAP if you believe AI infrastructure adoption will accelerate post-earnings.
- Sell if Q3 results disappoint or macro risks (e.g., tariffs, inflation) escalate.

In a volatile tech landscape, NTAP remains a “wait-and-see” play—its true potential hinges on execution in the AI era.

Data as of July 2025. Past performance does not guarantee future results.