Investing.com -- Barclays upgraded NetApp Inc (NASDAQ: NTAP ). to "Overweight" from "Equal Weight," citing the company’s leadership in cloud storage, strong recurring revenue, and improved product margins.

The brokerage said NetApp’s fast-growing cloud business and high-margin services segment are underappreciated by investors.

It noted that NetApp’s software share of the storage market has jumped from under 10% in 2020 to more than 25% in 2024, reflecting the company’s shift toward cloud and subscription-based models.

NetApp’s public cloud segment, though only about 10% of revenue, is growing faster and with higher gross margins than the hybrid business, Barclays said.

It expects the cloud unit’s gross margins to climb toward a 75–80% target, supporting overall margin expansion.

NetApp is one of the least hardware-reliant names in Barclays coverage, analysts wrote, highlighting the company’s ability to generate steady, high-margin service revenue, especially compared to peers like F5.

Barclays also pointed to a shift in customer behavior from subscriptions to usage-based consumption, which now accounts for roughly 80% of NetApp’s cloud revenue.

The company’s Keystone offering, part of its private cloud push, is growing over 50% year-over-year.

While the upgrade is not valuation-driven, the firm noted NetApp is trading at just 12 times forward earnings, well below historical averages, despite improved fundamentals. The price target remains $115.

Analysts added that no benefit from artificial intelligence is currently priced into the stock, even though AI could become a positive factor over the longer term.