Pure Storage Soars on Landmark AI Hyperscaler Deal, Signaling Shift in Data Storage Landscape

AI play Pure Storage soars 22% after touting it won a contract with an unnamed big tech company

Low-angle view of sign with logo on facade of technology company Pure Storage in the Silicon Valley town of Mountain View, California, October 28, 2018. Pure Storage shares rallied after announcing a contract with an unnamed "top four" AI hyperscaler in tandem with its fiscal third-quarter results. The shares were last up 22% in premarket trading. The data storage management company topped Wall Street's estimates and offered up strong fourth-quarter guidance. Pure Storage also upped its previously forecasted full-year outlook. "We're very pleased," CEO Charles Giancarlo told CNBC's "Closing Bell: Overtime" on Tuesday. "This is the first time ever where a hyperscaler, for their standard customer-facing storage, is going to be using a system vendor ... and what we're providing them is a very cost effective, high performance solution that can replace 90% of their storage." Pure Storage refrained from sharing the name of the contracted hyperscaler company, but Wall Street analysts regarded news as a big win contributing to the post-earnings pop. A hyperscaler refers to the major cloud computing companies with massive data center that can rapidly size up to meet shifting storage and demands. Some of the key players with major cloud units include Amazon, Microsoft, Alphabet and Meta. Piper Sandler upgraded shares to an overweight rating following the results. Shares are already up about 50% this year as investors seek out alternative methods to playing artificial intelligence trends and companies search for new ways to manage AI's data-heavy needs. Analyst James Fish said the contract creates a "pure opportunity ahead" and "removes the "coinflip risk" previously price into the stock. Agreements with additional hyperscalers represent and additional potential upside catalyst for the stock, he wrote, moving to a $76 price target. "Hyperscaler interest in flash creates a secular tailwind for the space, as these vendors have historically represented 60-70% of [hard disk drive] shipments," wrote James Fish. "AI throws 'gas on the fire' for utilizing" its storage operating system. Fish isn't alone in his bullish take on the stock. Wedbush Securities analyst Matt Bryson called the news a "margin accretive" win for the company and upped his price target to $75. "We see no reason to shift our constructive view on PSTG, given the promising incremental revenue opportunity and our continued belief that PSTG offers a superior enterprise storage solution," he wrote.

Pure Storage share price soars after it delivers on promise of hyperscaler cloud deal

Pure Storage has delivered another solid set of earnings, beating analyst expectations. However, the news that the vendor had secured its first flash storage deal with a top four hyperscaler during Q3 was likely the primary motivator for sending its share price soaring 20% in after hours trading. CEO Charlie Giancarlo had hinted during the previous quarter's earnings call that a deal could be on the cards before year-end, stating that Pure could offer hyperscalers better performance, reliability, and power and space savings than hard disks. On the analyst call this week, Giancarlo said: I am pleased to announce that we signed a design win with a Top Four hyperscaler in the last few weeks. This is the first-ever design win to provide flash for standard hyperscaler storage and it is the vanguard for flash storage providing all online storage in major hyperscale environments in the future. For reference, the hyperscale market is responsible today for 60% to 70% of all Hard Disk Drives purchased globally. In addition to providing cost effective data storage, this Top Four hyperscaler's use of Pure technology is expected to free up significant amounts of power and space in their data centers. It is also expected to significantly reduce the failure rates and maintenance costs associated with legacy disk storage, while doubling the expected lifetime of their storage infrastructure. He added that a close engineering engagement between the companies, and extended testing by the hyperscaler, had proven that Pure's DirectFlash technology is now capable of providing cost effective data storage at hyper-scale capacity, even at low cost bulk data, price ranges. Giancarlo said that Pure's outreach with hyperscalers had been met with skepticism about whether the vendor could achieve the price and performance necessary to replace cheap hard drive storage, but that by working together they had "optimized the economics to fit their financial targets". Looking ahead, the CEO outlined the scale of the opportunity: With this win, Pure is entering an exciting new hyperscale market. The design win itself signals that this Top Four hyperscaler's future data centers are approved to use Pure's technology as their data storage standard. We expect early field trial buildouts next year, with large full production deployments, on the order of double-digit Exabytes, expected in calendar 2026, which corresponds with our fiscal 2027. We continue in our dialogues with other major hyperscalers as well. Given the significant opportunity that exists for this and other hyperscalers, we anticipate increased investment in our hyperscale Line of Business over the next year. Looking more broadly at the numbers released this week, Pure's Third Quarter highlights include: Giancarlo also took the time to talk about the vendor's positioning across Artificial Intelligence, which is seeing huge buyer and B2B investmnet. Pure Storage provides high-performance storage for public and private GPU farms in machine learning and training environments, but also has become certified for the NVIDIA DGX SuperPOD architecture, which is designed to provide turnkey infrastructure for the world's largest training environments. But speaking about the enterprise AI opportunity specifically, Giancarlo said: Many enterprises are considering inference engines and retrieval-augmented generation or RAG environments as they look to apply commercial large language models to analyze their proprietary data. This quarter, we introduced the Pure Storage GenAI Pod, a set of full-stack solutions which reduce the time, cost, and expertise required to deploy generative AI projects. In the quarter, we signed a deal with a medical device manufacturer who faced multi-million-dollar interruptions because their legacy storage technology couldn't support a real-time AI imaging system to catch defective products. With Pure, they can now run AI analytics, capture metadata, and train their machines to identify and prevent defects, significantly improving their operations and quality assurance. AI continues to drive customers to modernize and break down infrastructure and data silos to enable easier access to data. Unlike with other vendors, Pure customers will not need to manage different storage operating environments to meet their varied AI needs. Undoubtedly another excellent quarter for Pure Storage. The bet on the hyperscaler opportunity seems to have paid off - the sales engagement may have taken over a year, but the multi-year opportunity ahead seems to have been worth it. AS companies grapple with dataset management, increased infrastructure costs and sustainability challenges, Pure has a lot of market momentum.

Piper Sandler: Pure Storage hyperscaler win creates 'pure opportunity' By Investing.com

Investing.com -- Piper Sandler upgraded Pure Storage (NYSE:PSTG) from Neutral to Overweight following a significant design win with a top-4 cloud hyperscaler. The analysts highlighted the deal as a game-changer, saying it creates a "pure opportunity" ahead that could generate over $500 million in revenue by 2026 and position the company for further growth in cloud and AI markets. The win, according to Piper Sandler, "removes risk and creates a catalyst for upside ahead." The firm believes it also signals Pure Storage's growing differentiation in the market, with the large software deal showcasing its appeal to cloud players, particularly around AI use cases. Flash storage is gaining momentum, particularly in the cloud and AI sectors, where Pure's offerings are carving out a competitive edge, says Piper. "The narrative shifts to Cloud & AI over STaaS," the analysts noted, adding that Pure Storage's shift away from its Storage-as-a-Service (STaaS) transition has effectively eliminated a revenue headwind. Pure's FQ3 results exceeded expectations in traditional sales but saw challenges in lead metrics. Despite this, Piper Sandler believes the hyperscaler deal and broader market dynamics present a strong case for growth. "We see further estimate upside and room for multiple expansion," they stated, raising their price target to $76, which represents 25x estimated 2026 EBITDA. Their bull-case valuation for the stock stands at $104 per share. Piper Sandler concluded that Pure Storage's strong market position, coupled with its success in the cloud and AI space, positions it well for sustained growth. "More hyperscalers could be coming," they suggested, underscoring the potential for additional opportunities in the future.