NetApp ( NASDAQ: NTAP ) and Super Micro Computer ( NASDAQ: SMCI ) shares fell on Monday as investment firm Susquehanna downgraded the enterprise tech companies, noting that there is not likely to a "catalyst" to recovery anytime soon.
Analyst Mehdi Hosseini lowered his rating on NetApp ( NTAP ) and Super Micro Computer ( SMCI ) shares to neutral, noting that with the downgrade came estimates for fiscal 2024 that are 15% below consensus.
"Looking forward, we argue the sector will continue to underperform into 2023 because there is no visibility/catalyst on the timing and pace of a recover," Hosseini wrote in a note to clients, adding that cloud and IT spending will likely peak in the second-half of this year and have "several quarters" of decline going into next year.
In addition, there are concerns that server builds are declining and it's likely that 2023 will be a similar year to 2019, with the NASDAQ bottoming in late 2018 but enterprise stocks underperformed in 2019 due to weaker cloud and enterprise spending.
NetApp ( NTAP ) shares were down 1% in early trading while Super Micro ( SMCI ) shares were down more than 4.5%.
Concerning NetApp ( NTAP ), Hosseini noted that the company has benefited from all-flash array revenues, which rose 20% year-over-year in fiscal 2022. However, that's likely to decline in fiscal 2023 to just a 12% growth rate.
NetApp ( NTAP ) has also benefited from the growth in public cloud and cloud storage, with the analyst pointing out that product revenue that is expected to decline inside the hybrid cloud unit.
Regarding Super Micro Computer ( SMCI ), the analyst noted that the company has benefited from the "secular growth" in both artificial intelligence and machine learning. While those trends are expected to continue and helped the company increase its blended average selling price per compute node, the pace of growth is expected to slow down.
"This, combined with lower system unit shipment, in our view, will dampen the overall revenue growth rate and actually bring it to a stand still by [fiscal 2024]," Hosseini added.
Last month, Super Micro Computer ( SMCI ) said it generated $1.64B in net sales during the fourth-quarter, up from $1.07B in prior year quarter led by favorable product mix with increased shipments of rack scale total IT solutions .
Analysts are largely positive on NetApp ( NTAP ). It has a BUY rating from Seeking Alpha authors , while Wall Street analysts rate it a BUY . Conversely, Seeking Alpha's quant system, which consistently beats the market, rates NTAP a HOLD .
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NetApp, Super Micro slip as Susquehanna downgrades on concerns of weak cloud, IT spending