AI Workloads Will Transform Cloud Storage Markets

Key Takeaways

• Rapid AI-driven data growth and product innovation position Backblaze for accelerated revenue, margin expansion, and increased enterprise adoption.
  
• Enhanced sales strategy and operational efficiencies strengthen retention, boost profitability, and support long-term market share gains against larger incumbents.
  
• Intense competition, commoditization, low brand recognition, regulatory risks, and high investment needs threaten profitability and scalability despite positive demand drivers.

Catalysts

A storage cloud platform, provides businesses and consumers cloud services to store, use, and protect data in the United States and internationally.

• AI-driven data growth is accelerating demand for high-performance, scalable, and affordable cloud storage solutions. Backblaze’s B2 Cloud Storage platform saw significant growth from AI workloads (AI customer data grew 25x; fastest growing segment), positioning the company to capture increasing wallet share from this secular wave, translating into higher revenue growth and larger contract values over the coming years.
  
• Recent product innovation, particularly the launch of B2 Overdrive (ultra-high-performance, cost-effective storage for massive AI and analytics workloads), leverages existing IP and platform efficiencies with minimal additional R&D investment. This should enable further margin expansion and disproportionate earnings growth as high-value enterprise use cases ramp.
  
• Enhanced sales execution and go-to-market revamp (including new partnerships, expanded sales force, and upmarket focus) are doubling sales bookings, supporting recurring revenue growth and improved customer retention. This improved sales motion, coupled with enterprise wins (largest-ever TCV deal displacing AWS), sets the stage for sustained increases in revenue and net revenue retention.
  
• Operating leverage from proprietary infrastructure and improved asset utilization (longer hardware lifespan, optimized data center operations) has led to higher gross margins and a rapid move toward positive adjusted free cash flow. Continued efficiency gains and scale should further boost net margins and cash generation.
  
• Growing adoption of open, multi-cloud, and cloud-first architectures is driving businesses—from AI innovators to traditional enterprises—to switch from expensive incumbents to affordable, high-performance platforms like Backblaze, supporting durable long-term revenue expansion and greater market share in an expanding total addressable market.

Backblaze Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Backblaze's revenue will grow by 13.2% annually over the next 3 years.
• Analysts are not forecasting that Backblaze will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Backblaze's profit margin will increase from -35.4% to the average US IT industry of 6.3% in 3 years.
• If Backblaze's profit margin were to converge on the industry average, you could expect earnings to reach $12.2 million (and earnings per share of $0.18) by about July 2028, up from $-46.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 77.4x on those 2028 earnings, up from -6.3x today. This future PE is greater than the current PE for the US IT industry at 27.6x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.57%, as per the Simply Wall St company report.

Backblaze Future Earnings Per Share Growth

Risks

• Despite positive growth, Backblaze continues to face intense competition from hyperscale cloud providers (Amazon AWS, Google Cloud, Microsoft Azure), which could pressure pricing, slow customer acquisition, and constrain revenue growth as these incumbents expand their offerings and vertical integration.
  
• The company's limited brand recognition and the need to further ramp its go-to-market initiatives—particularly in partner and channel sales—may lead to elevated customer acquisition costs and restrict its ability to achieve greater scale, potentially impacting operating leverage and net margins.
  
• Industry commoditization of cloud storage services may continue, leading to sustained price-based competition and shrinking gross margins, which is evidenced by Backblaze’s emphasis on cost leadership and value rather than unique technological differentiation.
  
• Backblaze's business is exposed to regulatory and trade risks, including evolving data sovereignty requirements and potential tariffs on hardware imports; while currently manageable, these could increase compliance or input costs and weigh on future margins and free cash flow.
  
• While B2 Overdrive and AI-related demand are contributing to growth, the need to continually invest in software and hardware to support advanced workloads could increase R&D and capital expenditures; if the pace or scale of customer adoption slows, these investments may compress profitability and delay the company’s ability to achieve sustained positive free cash flow and net income.

Valuation

• The analysts have a consensus price target of $10.987 for Backblaze based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $15.9, and the most bearish reporting a price target of just $7.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $191.8 million, earnings will come to $12.2 million, and it would be trading on a PE ratio of 77.4x, assuming you use a discount rate of 8.6%.
• Given the current share price of $5.39, the analyst price target of $10.99 is 50.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.