Pure Storage, Inc’s PSTG shares have been performing well on the trading front, with a gain of 69.5% year to date (YTD). Headquartered in Mountain View, CA, Pure Storage provides software-defined all-flash solutions that are uniquely fast and cloud-capable for its customers.

The stock has outperformed its sub-industry, the Zacks Computer and Technology sector and the S&P 500 composite’s growth of 45%, 32.4% and 27.4%, respectively.

YTD Price Performance

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Closing at $60.29, the stock is still down 14.4% from its 52-week high level of $70.41, reached on June 18, 2024, indicating further room for growth. PSTG trades above its 50-day moving average and this implies a bullish trend. 

Let us dive into PSTG’s prospects and determine the best course of action for your portfolio.

Momentum in FlashBlade Bodes Well for PSTG

PSTG is riding on strong demand for its FlashBlade solutions, including FlashArray//E, Flashblade//E, FlashArray//C and subscription-based offerings. FlashBlade//E is an unstructured data repository solution for large-capacity data stores. Customers can also deploy this latest solution through a new service tier of PSTG's Evergreen//One Storage as-a-Service subscription.

In the last reported quarter, revenues jumped 9% from the year-ago quarter’s reported number to $831.1 million, beating the Zacks Consensus Estimate by 2%. Apart from higher demand for FlashArray//E, Flashblade//E and FlashArray//C solutions’ strong growth in renewals of Evergreen subscriptions further fueled the expansion.

Deal With Hyperscaler: A Big Win for PSTG?

One of the major highlights for Pure Storage for the third quarter of fiscal 2025 was a transformational design win for its DirectFlash technology with a top-four hyperscaler. This milestone allows it to become the standard for hyperscaler online storage, offering top performance, scalability, lower costs and reduced power use. PSTG also deepened its partnership with Kioxia, a global leader in NAND Flash technology, to accelerate the development of high-performance, scalable storage solutions for the future.

The rapid advances in AI technology are opening up several market opportunities for Pure Storage in various market segments. It has announced several critical new platform features aimed at addressing the evolving needs of enterprise customers amid a rapid proliferation of AI.

Pure Storage also announced enhancements to Pure Fusion, a platform that delivers first-of-its-kind storage automation. These advancements further reduce the complexity of managing enterprise storage environments by removing the data silos of existing enterprise data storage systems, enabling customers to achieve greater efficiency and agility in their operations.

The company is also awaiting the launch of its Pure Fusion v2.0 in the fiscal fourth quarter. This transformative solution will empower customers to design their own enterprise data cloud.

PSTG Raises Outlook

Driven by a surge in Evergreen//One opportunities valued at under $5 million, transitioning to traditional sales, management has raised its revenue forecast for fiscal 2025. It now expects $3.15 billion in revenues, with 11.5% growth year over year, surpassing the prior estimate of $3.1 billion with 10.5% growth. However, this dynamic shift has hurt Evergreen//One TCV’s sales outlook. 

The company also increased non-GAAP operating income guidance to $540 million from $532 million predicted earlier. It continues to estimate a non-GAAP operating margin of 17%.

PSTG’s Growing Customer Base

Pure Storage has been gaining from its accelerating customer base. Customer growth had been exemplary with the count surging from 300 in the first quarter of fiscal 2015 to more than 10,500 in the second quarter of fiscal 2023. In the third quarter of fiscal 2025, Pure Storage added more than 340 new customers. At the end of the fiscal quarter, the company’s customer count was more than 13,000, including 62% of the Fortune 500 companies. Improving penetration into Global 2000 and Fortune 500 bodes well. We believe that the customer base would continue to expand driven by the impressive product portfolio, innovative pipeline and strong partner base.

PSTG’s Capital Allocation Strategy

Pure Storage has a strong balance sheet with ample liquidity position. It exited the fiscal third quarter, which ended on Nov. 3, with cash and cash equivalents and marketable securities of $1.6 billion. The company has no long-term debt as of Nov. 3, 2024. Cash flow from operations amounted to $97 million and free cash flow was $35.2 million in the fiscal third quarter. Robust liquidity and cash flow indicate that the company is making investments in the right direction.

In the fiscal third quarter, the company returned $182 million to its shareholders by repurchasing 3.6 million shares. PSTG has nearly $213 million left under its authorization plan.

Competition & Other Headwinds for PSTG

Pure Storage faces intensifying competition in the flash-based storage market. Stiff competition can result in a decline in the average selling price (“ASP”). Any decline in ASP is likely to impact the results if shipments do not improve considerably. 

Moreover, the overall market and macro environment remained consistent with the subdued IT spending amid intense competition observed throughout fiscal 2025. Customers continue to face challenges with rising costs in software, SaaS and cloud services, along with uncertainty around AI spending, all of these are putting unexpected strain on operating budgets. These factors limited the anticipated performance of Evergreen//One during the fiscal third quarter.

Outlook Causes Downward Estimate Revision for PSTG

Following the outlook revision, analysts seem bearish about the stock as indicated by the downward revision in earnings estimates.

In the past 60 days, analysts have decreased their earnings estimates for the current quarter and the next by 8.5% and 5.9%, respectively, to 43 cents and 32 cents per share. The earnings estimate for the next year has also been revised downward by 1.2% to $1.68 per share.

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PSTG’s Expensive Valuation a Concern

PSTG’s stock is trading at a premium with a forward 12-month Price/Earnings of 32.31X compared with the industry’s 13.51X. Though the lofty valuation indicates high expectations for growth, the near-term prospects of the company remain somewhat muddled.

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PSTG’s Zacks Rank

PSTG carries a Zacks Rank #3 (Hold) at present.

PSTG has a solid growth opportunity driven by demand for its FlashBlade solutions and the rapid proliferation of AI. However, stiff competition and subdued IT spending along with expensive valuation and estimated downward revisions warrant caution. Consequently, it might not be a prudent investment decision to bet on the stock at the moment. However, long-term stakeholders and investors already owning the stock can stay put.

Stocks to Consider

Some better-ranked stocks from the broader technology space are Plexus Corp., Inc. PLXS, InterDigital, Inc. IDCC and Celestica CLS. PLXS & IDCC presently sport a Zacks Rank #1 (Strong Buy), whereas CLS carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for PLXS’ fiscal 2025 EPS is pegged at $6.79, unchanged in the past seven days. PLXS’ earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, while missing once, with the average surprise being 10.3%. Its shares have increased 63.2% in the past year.

The Zacks Consensus Estimate for IDCC’s 2024 earnings is pegged at $15.22, up 12.5% in the past 30 days. IDCC’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 163.7%. Its shares have surged 83.6% in the past year.

The Zacks Consensus Estimate for CLS’ 2024 EPS is pegged at $3.85, which rose 5.5% in the past 60 days. Celestica’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 13.2%. The stock has inched up 220.2% in the past year.

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