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Over the past two years, artificial intelligence (AI) stocks have continued to attract investors' attention - but not all of them have delivered staggering returns to shareholders. The "Magnificent 7" have led the charge, with Nvidia (NVDA) posting an impressive 857% gain since late 2022. However, other companies are rapidly establishing their presence in the AI realm, positioning themselves to potentially become trillion-dollar giants.
Among these emerging contenders, Pure Storage (PSTG) is a data storage firm that's starting to gain attention for its AI-driven innovations and strategic partnerships. Recently, the company has attracted bullish commentary from analysts at Oppenheimer, with the firm saying it expects Pure Storage to snag market share from industry giants like HP Enterprise (HPE) and Dell (DELL) over the longer term.
For investors in search of growth opportunities in the still-booming AI industry, here's a closer look at PSTG stock.
About Pure Storage Stock
Based in California, Pure Storage (PSTG) is a leading advanced data storage platform provider that stores, manages, and protects data at any scale. Specializing in all-flash data storage solutions, the company has positioned itself at the forefront of the AI revolution. Its flash-based technology delivers faster data processing, scalability, and reliability, which is critical for managing the massive, data-intensive workloads required by AI and machine learning applications.
As AI technologies continue to evolve and generate vast volumes of data, Pure Storage's all-flash storage array solutions provide the high-speed, reliable infrastructure businesses need to accelerate their AI initiatives, solidifying their role as key players in the data storage landscape.
With a market cap of $16.3 billion, shares of PSTG have rallied 44.6% YTD, outperforming the broader S&P 500 Index's ($SPX) 24.7% rise in the same period. However, PSTG stock has pulled back 26% from its June high, allowing investors to buy the dip at current levels.
In terms of valuation, Pure Storage is priced for growth, at 26.6 times forward adjusted earnings estimates for fiscal 2026, and 4.63 times forward sales.
Pure Storage Smashed Expectations in Q2
Pure Storage fell after its most recent earnings report, despite crushing expectations. In its fiscal Q2 earnings report, the company posted revenue of $763.7 million, marking an 11% year-over-year increase, with its subscription segment growing 25% to $361.2 million.
Subscription annual recurring revenue (ARR) increased 24% to $1.5 billion, while remaining performance obligations (RPO) rose 24% to $2.3 billion. Q2 operating cash flow reached $226.6 million, and free cash flow arrived at $166.6 million. PSTG ended the quarter with total cash, cash equivalents, and marketable securities of $1.8 billion.
While revenue beat Wall Street's expectations, and so did adjusted earnings per share (EPS) of $0.44, investors sent the stock lower after guidance came up short.
Management guided for fiscal Q3 adjusted operating income of $140 million, missing the consensus of $148 million, and the forecast for adjusted operating margin of 17.2% missed the average estimate of 18.2%. And for the full fiscal year ending in January 2025, PSTG guided for revenue of $3.1 billion, just barely short of Wall Street's $3.14 billion forecast.
Fiscal Q3 earnings from Pure Storage are expected on Dec. 3.
Pure Storage Partners with CoreWeave
Since then, Pure Storage announced a cybersecurity partnership with Rubrik (RBRK) in September, and last week, Pure Storage revealed a strategic investment in CoreWeave. PSTG's partnership with the AI hyperscaler will integrate the Pure Storage platform into CoreWeave Cloud, enhancing their ability to accelerate the development and deployment of AI solutions.
"Our strategic collaboration with CoreWeave reflects a shared commitment to delivering AI innovation at scale and marks a major milestone in delivering the flexibility and scalability that AI-driven organizations need to thrive," said Chief Technology Officer Rob Lee.
What Do Analysts Expect For PSTG Stock?
On Nov. 13, Oppenheimer analysts initiated coverage of PSTG with an "Outperform" rating and a price target of $70. The firm stated that the data storage provider is well-positioned to benefit from the growing demand for unstructured data storage required for AI applications.
"Since AI requires data to be stored and accessed on highly performing infrastructure, it is best served by all-flash arrays. This, in turn, provides a long tail of growth for the industry," wrote analyst Param Singh in a note to clients.
Singh believes the all-flash array (AFA) market will grow at an 8.5% CAGR through 2028, reaching $17 billion, and that a market shift toward AFAs should benefit Pure Storage - allowing it to gain an edge over giants like DELL and HPE.
On the other hand, Citi recently lowered its price target on PSTG to $63 from $67, as the firm has yet to see a significant increase in demand for external storage. However, like most analysts, Citi rates the AI stock a “Buy.”
The average price target for PSTG is $66.16, more than 28% higher than Thursday's close.
