PSTG - Pure Storage: Market Share Gains And AI Opportunities Make This A Substantial Opportunity

2024-07-12 03:15:33 ET

Summary

• Pure Storage continues to gain market share within its category of all-flash-arrays in enterprise data centers.
• Pure shares have risen by almost 80% in 2024 but pulled back 10% recently due to concerns about AI opportunities and competitive pressures.
• Pure is transitioning to a subscription model, impacting reported revenue growth but expected to accelerate reported revenue growth margins in the future.
• Pure has a strong and growing relationship with one hyperscaler, Meta, and is expected to announce a design win with another hyperscaler this year.
• Pure's advantages in terms of power consumption have become of exceptional importance, as AI queries are thought to take 10X the power of standard Google queries.

Pure: Looking at some of the company's operating highlights last quarter

Pure shares have done very well over 6 months . The shares have risen by almost 80% so far in 2024. In the last couple of weeks, however, Pure’s shares have pulled back about 10%. Part of this is a function of what hasn’t happened: the company hasn’t announced a specific design win deal with a large hyperscaler, and it hasn’t talked about wins lately for workloads that stem from AI deployment. The other day, the shares were buffeted by a downgrade-not based on valuation-but on concern about the real opportunity in the AI space and concerns about competitive pressures from a variety of competitors. Indeed, the analyst projected a CAGR for Pure of 8% for the next five years.

What is the next chapter for Pure? The analyst from UBS, David Vogt, who downgraded the shares to a sell, proclaimed that Pure would lose share to vendors, both large and small, and also maintained that the AI opportunity for storage will be far more muted overall than many anticipate. His forecast of an 8% CAGR is far below consensus expectations, which he believes are for revenue growth of 12%-16%. The company, most currently, has forecast revenue growth for the full year of 10.5% ; the 1 ^st Call consensus is calling for revenue growth this current fiscal year comparable to the company’s forecast.

Pure is thought of as a growth company-and I believe it to be so. Neither 10% nor 13%, the current published consensus for revenue growth in FY ’26 are anything like metrics for most growth companies. What gives?...

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