Enterprise Data Cloud Adoption Will Unlock New Opportunities

Key Takeaways

• Accelerating adoption of Pure's data cloud and subscription offerings positions the company for long-term growth, improved revenue predictability, and higher gross margins.
  
• Strategic hyperscaler partnerships and success in high-performance hardware enhance premium pricing power, create new revenue streams, and drive share gains in demanding enterprise segments.
  
• Heavy focus on traditional products and uncertain cloud transition, combined with rising competition and unpredictable demand, threaten recurring revenue growth and margin stability.

Catalysts

Engages in the provision of data storage and management technologies, products, and services in the United States and internationally.

• The adoption of Pure's Enterprise Data Cloud architecture and software-defined solutions is accelerating among large enterprises, driven by the need to manage rapidly growing and increasingly valuable data assets in the evolving AI economy; this positions Pure to capture rising long-term revenue from digital transformation and AI/ML-driven workloads.
  
• Strategic wins and expanding co-engineering relationships with hyperscalers (e.g., Meta) are creating new high-margin royalty and software revenue streams, and ongoing early-stage engagements with additional hyperscalers signal potential for material upside to revenue and gross margin as cloud infrastructure investments scale.
  
• Momentum in subscription-based offerings like Evergreen//One and Cloud Block Store-demonstrated by strong annual recurring revenue (ARR) growth, a rising share of total revenue, and robust RPO backlog-improves revenue predictability, reduces earnings volatility, and supports higher overall gross margin.
  
• The success of new hardware launches targeting high-performance AI and data analytics workloads (e.g., FlashBlade//EXA, FlashArray//XL R5) is capturing share in the most demanding enterprise segments, enabling premium pricing and driving expansion in gross margin and product revenue.
  
• Pure's all-flash solutions continue to attract organizations focused on lowering TCO and meeting sustainability/efficiency mandates, as evidenced by customer reports of major reductions in space, power, and cooling requirements (~70%), supporting both top-line growth from new wins and higher net margins via operational efficiency.

Pure Storage Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Pure Storage's revenue will grow by 15.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.2% today to 11.2% in 3 years time.
• Analysts expect earnings to reach $571.5 million (and earnings per share of $1.4) by about September 2028, up from $139.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $688.9 million in earnings, and the most bearish expecting $327.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 56.5x on those 2028 earnings, down from 186.0x today. This future PE is greater than the current PE for the US Tech industry at 24.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.03%, as per the Simply Wall St company report.

Pure Storage Future Earnings Per Share Growth

Risks

• Pure Storage's heavy emphasis on physical and hybrid storage products, along with its noted challenges in accurately forecasting the mix between as-a-service (Evergreen//One) and product revenues, may hinder its ability to fully transition to scalable, cloud-native services at the pace required by the market-potentially capping recurring revenue growth and predictability.
  
• While current financials show strong margins (72.1% total gross margin, 76.5% subscription margin), the company acknowledges the need for ongoing heavy R&D and infrastructure investment to support hyperscaler deployments and data center expansion, introducing a risk of margin compression and higher operating expenses if revenue growth does not outpace these investments.
  
• Pure Storage's ongoing efforts to win business from hyperscalers (like Meta and others) are still in early-stage engagements, with management repeatedly stating that most of this revenue is not yet material; this introduces substantial uncertainty and potential volatility in future large-scale contract wins, impacting both future revenues and net earnings.
  
• The company faces growing competition, including from large incumbents and niche players, in AI, HPC, neo-cloud, and cloud-native storage spaces; increased price-based competition or technological disruption (e.g., open-source, software-defined storage) could erode market share and average selling prices, negatively affecting top-line growth and profit margins.
  
• Pure Storage's financial guidance now incorporates a range rather than a single target, attributed partly to increased market and macroeconomic uncertainty; this suggests potential unpredictability in demand, product mix, or macro conditions, which could result in missed revenue, operating profit, or margin targets in the future.

Valuation

• The analysts have a consensus price target of $78.5 for Pure Storage 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 $93.0, and the most bearish reporting a price target of just $55.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.1 billion, earnings will come to $571.5 million, and it would be trading on a PE ratio of 56.5x, assuming you use a discount rate of 8.0%.
• Given the current share price of $79.21, the analyst price target of $78.5 is 0.9% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.