NetApp, Inc. (NTAP Quick QuoteNTAP - Free Report) and International Business Machines Corporation (IBM Quick QuoteIBM - Free Report) are prominent players in the enterprise storage market, benefiting from rising demand for AI, hybrid cloud infrastructure and data modernization. As enterprises increasingly deploy AI-driven applications and manage growing volumes of data, the need for high-performance, scalable and secure storage solutions continues to expand. Both companies are strengthening their storage portfolios to capitalize on these trends, making them attractive investment options in the evolving enterprise infrastructure market.

NetApp is gaining traction through its all-flash storage solutions, cloud storage services and AI-ready data infrastructure, supported by strong customer demand and expanding adoption across enterprise workloads. Meanwhile, IBM is leveraging its diversified infrastructure portfolio, including Flash, Fusion, Tape and IBM Z storage, to address growing enterprise data requirements and support AI workloads. While NetApp's focused storage strategy and strong growth momentum offer opportunities, IBM's broad technology portfolio and established enterprise relationships provide competitive advantages.

Against this backdrop, which of these two enterprise storage stocks, NTAP or IBM, presents a better investment opportunity?

The Case for NTAP

NetApp is benefiting from strong demand for AI-ready data infrastructure and enterprise storage modernization. As organizations move AI projects from experimentation to production, NetApp is seeing increased demand for high-performance, secure and scalable storage solutions. Its unified platform enables customers to prepare and access data for AI without moving it across environments, while maintaining governance and cybersecurity. During the first quarter of fiscal 2027, the company secured approximately 350 AI and data lake modernization deals, with deal sizes increasing as customers expanded deployments into production. Broad-based demand across industries, geographies and customer segments, along with new customer wins and deeper existing relationships, supports its growth prospects.

Strong adoption of all-flash storage and cloud services is supporting NetApp’s growth. All-flash array revenue surged 47% year over year to $1.31 billion in the first quarter of fiscal 2027, driven by demand for mission-critical workloads, including GPU-intensive AI applications. Public cloud revenue increased 28% to $206 million, reflecting solid adoption of first-party and marketplace storage services. The company is also benefiting from VMware workload migrations and cloud modernization through Amazon FSx for NetApp ONTAP and Azure NetApp Files. Meanwhile, its Keystone storage-as-a-service offering continues to gain traction, while growing interest in hybrid-flash solutions allows NetApp to address customers' varying performance, capacity and budget requirements.

Strategic acquisitions are expanding NetApp’s capabilities across AI and cloud environments. The acquisition of DataPelago strengthens the company's AI data infrastructure portfolio through its Nucleus software engine, which supports high-performance, in-place data processing and reduces costly data movement. This technology can help customers accelerate AI readiness and unlock greater value from existing data assets. Additionally, JetStream, acquired at the start of the second quarter, enhances NetApp's cloud disaster recovery capabilities for VMware environments, enabling continuous protection and recovery across different storage platforms. These acquisitions complement the existing portfolio, strengthen the company's competitive position and create opportunities to expand its presence in AI analytics, inference and cloud migration.

NetApp’s strong financial performance and raised fiscal 2027 guidance reflect improving business momentum. First-quarter revenues increased 30% year over year to $2.03 billion, while non-GAAP earnings per share climbed 66% to $2.58. Operating margin reached 31.9%, highlighting the company's ability to convert revenue growth into higher profitability. NetApp generated $401 million in free cash flow and returned $302 million to shareholders through share repurchases and dividends. Reflecting strong demand, pricing actions and disciplined execution, the company raised its fiscal 2027 revenue guidance to $7.98-$8.23 billion, with the midpoint of $8.1 billion indicating 17% year-over-year growth. It also raised its non-GAAP EPS outlook to $9.73-$10.03, signaling confidence in continued earnings growth.

However, rising component costs remain a concern for the company’s profitability. Product gross margin declined 150 basis points (bps) sequentially to 54.6% in the first quarter of fiscal 2027, primarily due to higher component costs, although improved pricing provided a partial offset. Overall non-GAAP gross margin fell 50 bps year over year to 70.6%, partly reflecting a higher contribution from product revenue. NetApp expects second-quarter gross margin to decline to 67-68%, primarily because of an increased product revenue mix. While pricing actions and improved execution are helping the company recover additional costs, continued component price inflation and the timing of cost recovery could weigh on margins.

The Case for IBM

IBM is gaining from accelerating demand across its software, infrastructure and consulting businesses, supported by enterprise investments in AI, hybrid cloud and application modernization. In the third quarter of 2026, revenue growth accelerated to 6%, led by 9% growth in Software and 5% growth in Infrastructure, alongside modest improvement in Consulting. Red Hat revenue increased 11%, with bookings growth returning to the high teens, while OpenShift ARR growth accelerated to more than 30%. Data revenue grew 20%, supported by Confluent, and Transaction Processing revenue increased 10%, reflecting demand for mission-critical mainframe software. These results highlight the strength and diversity of IBM’s portfolio and continued client demand for its technology platforms.

The company is benefiting from growing enterprise demand for AI-related software, real-time data management and hybrid cloud solutions. Its integrated portfolio includes Confluent for real-time data, watsonx for AI-driven software development and agent orchestration, HashiCorp and Apptio for identity, policy and cost management, and Red Hat for open hybrid cloud architecture. Confluent’s capabilities help make enterprise data available to AI applications, while the planned Streamhouse capabilities are expected to support cross-selling and upselling opportunities. IBM is also advancing AI cost management through Apptio and the open-source llm-d project, developed with Red Hat and Google, which reuses processed context to help lower large AI model operating costs. In addition, IBM’s expanded relationship with Google Cloud and its strategic partnership with OpenAI support its efforts to help clients scale enterprise AI.

Strong demand for infrastructure modernization and AI workloads is also supporting IBM’s performance. Infrastructure revenue increased 5%, driven by 32% growth in Distributed Infrastructure, while storage delivered record revenue growth and gained market share across Flash, Fusion, Tape and IBM Z storage. The z17 mainframe platform continued to perform strongly, generating more than $1 billion in incremental revenue over six quarters compared with prior programs. IBM also reported strong demand for its new midrange IBM Z systems. Rising AI infrastructure requirements are supporting demand for differentiated storage solutions, while the company’s focus on security, reliability and scalability continues to support its mainframe offering. Consulting revenue grew 2%, driven by demand for AI-enabled transformation, application modernization, data and AI transformation, and cybersecurity.

IBM’s profitability, cash generation and full-year outlook reflect disciplined execution and productivity initiatives. Third-quarter operating pretax margin expanded 70 bps, while operating earnings per share increased 11%. Free cash flow reached approximately $8 billion in the first nine months of 2026, up 8% year over year, and the company reported its highest nine-month free cash flow margin in its reported history. Productivity initiatives generated efficiencies across general and administrative expenses, sales and marketing, software development, supply chain and services delivery. IBM continues to expect 2026 revenue growth of 4-5% and 100 bps of operating pretax margin expansion, while raising its free cash flow growth expectation to more than $1 billion. The company also expects full-year Software growth of 7-8%.

However, the company’s growth in Transaction Processing may moderate after its strong third-quarter performance. Transaction Processing revenue increased 10%, partly reflecting the closure of deals deferred from the second quarter alongside the normal third-quarter purchasing cycle. Management stated that it does not expect double-digit growth to continue and anticipates more normalized performance, with possible moderation in the fourth quarter. Although the company expects Transaction Processing growth to be flat for the full year, the timing of customer purchases and the pace at which mainframe capacity translates into software revenue remain important factors in its performance.

IBM’s Consulting profitability faced pressure as the company reinvested productivity gains into digital assets to support its transition toward a Services-as-software model. While Consulting revenue increased 2%, its segment profit margin declined modestly. Higher capital expenditures, cash taxes and net interest expense are also offsetting some of the growth in adjusted EBITDA and affecting free cash flow. Although the company expects free cash flow growth of more than $1 billion for 2026, management identified these higher costs as offsets to the expected improvement.

Share Price Trajectory for NTAP & IBM

Over the past three months, NTAP stock has soared 32.2% while IBM rose 22.6%.

Image Source: Zacks Investment Research

Valuation Comparison

Going by the price/earnings ratio, NTAP’s shares currently trade at 25 forward earnings, close to 19.28 for IBM.

Image Source: Zacks Investment Research

How Do Zacks Estimates Compare for NTAP & IBM?

NTAP is currently witnessing an uptrend in estimate revisions. Earnings estimates for fiscal 2027 have been revised up 11.42% to $10.05 over the past 60 days, while estimates for fiscal 2028 have risen 11.5% to $11.03.

Image Source: Zacks Investment Research

The Zacks Consensus Estimate for IBM’s earnings has decreased over the past 60 days.

Image Source: Zacks Investment Research

NTAP or IBM: Which Stock Deserves Investors’ Attention Now?

NTAP appears to be the more attractive investment choice, supported by stronger share price momentum, robust business growth and upward earnings estimate revisions, along with its Zacks Rank #1 (Strong Buy), compared with IBM’s Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.