Pure Storage, Inc.’s PSTG shares have proven resilient, with a gain of 18.4% in the past three months, better than its industry’s decline of 11.6%. It has also outperformed the Zacks Computer and Technology sector and the S&P 500 composite’s growth of 3% and 0.8%, respectively.

Price Performance

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PSTG has also outperformed its peers like NetApp, Inc NTAP, Western Digital Corporation WDC and Netlist, Inc NLST. NTAP, WDC and NLST have registered declines of 7.3%, 7.5% and 23.4% in the same time frame.

After a sharp rally (up 75.1% in the past year), investors are now pondering whether PSTG is worth buying at current levels.

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

PSTG’s Key Growth Drivers

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%. Subscription services revenues (45.3%) of $376.4 million rose 22%, driven mainly by strong renewals of Evergreen subscriptions. This transition to a recurring revenue model enhances the company’s financial stability and visibility, making it an attractive investment for long-term growth.

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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. 

During the fiscal third quarter, Pure Storage was certified for NVIDIA's DGX SuperPOD architecture, a vital infrastructure for large-scale AI training environments. It also signed a deal with CoreWeave, providing its storage solutions as a standard option within CoreWeave’s dedicated cloud environment. The launch of Pure Storage GenAI Pod simplifies the deployment of generative AI projects by providing full-stack solutions that reduce the time, cost and expertise required for implementation. It’s useful for organizations looking to harness the potential of generative AI without the usual complexities.

Deal With Hyperscaler: A Big Win for PSTG

One of the major highlights for Pure Storage in 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. Pure Storage’s DirectFlash technology will become integral to this hyperscaler's data storage standard, with full-scale production deployments expected in calendar 2026.

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.

Pure Storage recently extended its long-standing partnership with Micron Technology. Over the past 10 years, Pure Storage and Micron have partnered to integrate MU’s advanced NAND technology into PSTG’s data solutions. The partnership has spanned seven generations of NAND technology, including the recently qualified Micron G8 QLC NAND used in Pure Storage’s 150TB DirectFlash Module. With the integration of Micron’s G9 QLC NAND, the collaboration is set to drive the future of DirectFlash Module products, offering high storage density, energy efficiency and performance.

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%.

Competition & Muted IT Spending: Concerns 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, putting unexpected strain on operating budgets. These factors limited the anticipated performance of Evergreen//One during the fiscal third quarter.

Downward Revision in Estimates for PSTG

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 0.5% to $1.90 per share.

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PSTG’s Expensive Valuation is a Concern

PSTG’s stock is trading at a premium, with a forward 12-month Price/Earnings of 33.41X compared with the industry’s 14.33X. Though the lofty valuation indicates high expectations for growth, the company's near-term prospects remain somewhat muddled.

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Conclusion: Hold PSTG Stock for Now

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. For now, holding PSTG stock remains the most prudent strategy, allowing investors to benefit from its industry leadership while navigating external risks.

Currently, PSTG carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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