As published in the 12/31/23 Ariel Investment Trust Quarterly Report
NetApp, Inc. (NASDAQ: NTAP) is a leading provider of software, hardware and other services that organizations use to efficiently store and manage their computer data across on-premises, privately and in public cloud environments. Established in 1992 and headquartered in Sunnyvale, California, the company has become a prominent player in the data management and storage solutions industry, positioning itself as a central provider for firms seeking to harness the power of data in the digital era.
Ahead in the Cloud
NetApp’s success lies in its unparalleled expertise and steadfast commitment to innovation. NetApp distinguishes itself with its cloud storage offerings. In the era of public cloud computing, there are technological differences between traditional, on-premises environments and those of the public cloud providers—the largest of whom are Microsoft, Amazon and Google. This inconsistency limits customers’ access to the full features and resources of the public cloud providers unless they undergo the costly process of rewriting applications and data. NetApp’s cloud storage services enable customers to utilize the full range of public cloud services without altering their infrastructure. This is a significant distinction from peers with more limited cloud services. Notably, NetApp’s cloud solutions have seen greater growth compared to its traditional hardware storage business, which we believe is underappreciated.
Sparking All Flash Arrays
On the hardware side, All Flash Array (AFA), a data storage technology exclusively using flash memory, is a potential growth driver for NetApp. AFAs offer significantly faster data access compared to traditional storage systems like Hard Disk Drives (HDDs), leading to an increased adoption shift. NetApp reports that approximately one-third of its HDD installed base has upgraded to AFA, indicating the potential for further growth. Also, the allure of its unique cloud offerings has attracted entirely new customers to NetApp and further fueled the success of its AFA.
Driving Artificial Intelligence Forward
The transformative landscape of artificial intelligence (AI) is poised to be another growth generator. AI applications require enormous processing power and data, making them far more suited to be run in the public cloud than within an organization’s computing environment. NetApp is well positioned to benefit from this growth given its unique cloud capabilities and partnerships with leading AI companies like Microsoft and NVIDIA.
As of December 31, 2023, NetApp’s shares traded at a price-to-earnings (P/E) ratio of 13.9x, which we think undervalues the long-term potential of its cloud services business. In our view, the company is positioned to effectively navigate industry dynamics and capitalize on emerging opportunities, creating the potential for sustained growth and shareholder value creation.
The companies highlighted in the Company Spotlights were held in one or more of the following Fund portfolios during the quarter ending December 31, 2023: Ariel Fund, Ariel Appreciation Fund, Ariel Focus Fund, Ariel International Fund and Ariel Global Fund. We candidly discuss various individual companies to illustrate our investment process. The information and our opinions were current as of the date above but are subject to change. The information shown does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular security. These securities do not represent all securities purchased or sold to investors during the period. The performance of any single portfolio holding is no indication of the performance of other portfolio holdings of any Fund or of any particular Fund itself. Portfolio holdings are subject to change. Past performance does not guarantee future results. Click here for the top holdings of the Funds.
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