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Pure Storage and Nvidia Proves AI-Ready Infrastructure Reigns

Pure Storage sign at company headquarters

Pure Storage Inc. (NYSE: PSTG) is an enterprise flash data storage solutions provider in the Computer and Technology sector benefitting from the artificial intelligence (AI) boom. AI applications require high-powered GPUs currently dominated by Nvidia Co. (NASDAQ: NVDA) and massive data storage capacity, which Pure Storage offers through its FlashBlade flash array storage systems. The combination of both hardware components is essential for AI-ready infrastructure (AIRI).

Pure Storage and Nvidia are already partnered for AIRI built on Nvidia DGX systems utilizing its FlashBlade//S. Pure Storage shares surged 23% to all-time highs on its fiscal Q4 2024 earnings report.

Big Name Clients

Pure Storage has an A-list roster of AI behemoths using its FlashBlade storage solutions, including Meta Platforms Inc. (NASDAQ: META), Inc. (NASDAQ: AMZN), Salesforce Inc. (NYSE: CRM), Alphabet Inc. (NASDAQ: GOOGL), and Equinix Inc (NASDAQ: EQIX). Pure Storage has nearly 60% of the Fortune 500 companies as clients after adding 6 more in fiscal Q4 for a total of 349 companies.

Migration to Consumption Pricing Model

In its prior quarter, Pure Storage shares took a 15% haircut when the market mistook the revenue miss as a sign of demand weakness rather than a revenue recognition similar to bookings due to the migration to a subscription model. Rather than posting upfront revenues, a consumption model collects its revenues in a subscription format.

It's an accounting measure that's switched over as it transitions enterprise customers from a product-centric model to the  Evergreen//One consumption software-as-a-service (SaaS) subscription pricing model.

The switch to a consumption pricing model enables easier onboarding of new customers with low start-up costs that grow as more storage gets consumed. This was also experienced by Inc. (NYSE: AI) in 2023 when they, too, switched over. The market understood this time around that Pure Storage’s fiscal Q4 revenue number indicated a 2.5% YoY drop, but instead focused on its subscription services revenue, which had climbed 24% YoY. Check out the sector heatmap on MarketBeat.

Competing with HDD

Traditional HDDs are still cheaper for a larger capacity than SSDs. Pure Storage competes with HDD makers like Seagate Technology Holdings plc (NASDAQ: STX) for storage solutions. While FlashBlade systems are quicker with faster read/write speeds, have lower latency, take up less space and use less energy, HDDs provide more bang for the buck with much cheaper costs per terabyte. HDDs are trying to catch up in terms of speed, while SSDs are trying to catch up in terms of capacity and lower prices. Over 90% of cloud data storage is currently using HDD, but AI workloads require high-performance storage, which is a secular tailwind for Pure Storage.

Strong Subscription Revenue Growth

Pure Storage reported fiscal Q4 2024 EPS of 50 cents, beating consensus estimates by 6 cents. Revenues fell 2.5% YoY to $789.81 million versus $784.31 million. This was due to the continued migration of enterprise customers to the consumption model. Q4 2024 subscription services revenues rose 24% YoY to $328.9 million. Q4 2024 annual recurring revenue (ARR) rose 25% YoY to $1.4 billion. Q4 2024 GAAP margin was 72%, and non-GAAP margin was 73.7%. Total cash and cash equivalents were $1.5 billion.

Raising the Bar

Pure Storage raised its fiscal Q1 2025 revenue guidance to $680 million versus $669.5 million consensus analyst estimates. Fiscal full-year 2025 revenues are expected to be around $4.1 million versus $3.15 billion.

CEO Comments

Pure Storage CEO Charlie Giancarlo commented, "Our data platform strategy is revolutionizing the storage industry. It helps enterprises and service providers unify fragmented data environments into a seamless, modern, and efficient system—a system performance-ready for artificial intelligence.”

Giancarlo continued, "And this can all be done now with Flash reliability, performance and economics, even at hard disk system price levels." Giancarlo also indicated that the company had landed a “notable” eight-figure Evergreen/One contract with one of the largest GPU cloud providers of AI infrastructure solutions in the world. He also noted that more and more customers are realizing their fragmented data storage environment could hinder their AI leverage ability.

Pure Storage analyst ratings and price targets are at MarketBeat. Pure Storage peers and competitor stocks can be found with the MarketBeat stock screener.

 Daily double bottom

The daily candlestick chart on PSTG illustrates the symmetrical triangle breakout pattern. This comprised of a descending upper trendline that formed at $45.22 on Feb. 9, 2024, indicating lower highs and an ascending lower trendline formed at $38.78 on Feb. 21, 2024, indicating higher lows. The daily relative strength index (RSI) surged through the overbought 70-band, rising to the 78-band. Pullback support levels are at $52.14, $47.58, $45.22 and $42.52.

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