On Wednesday, TD Cowen showed confidence in Pure Storage (NYSE:PSTG) by raising its price target to $80 from $70, while reiterating a Buy rating on the stock. The revision follows Pure Storage's recent financial performance, which exceeded expectations, reflected in its impressive 62.79% return over the past year.
According to InvestingPro data, the company maintains strong fundamentals with a 71.66% gross margin and healthy liquidity, though current valuations suggest the stock is trading above its Fair Value. The company's shift in sales strategy from as-a-service to capital expenditures (CapEx) was noted as a contributing factor to the positive results.
The analyst highlighted a significant development for Pure Storage, pointing out a hyperscale design win that could potentially transform the company's prospects. The deal involves one of the top four hyperscalers based on capital expenditure and is expected to account for roughly 10% of annual storage demand for a large hyperscaler.
This win is seen as critical, especially considering the scale of the agreement, which involves double-digit exabyte shipments. InvestingPro analysis shows the company is well-positioned for this expansion with a strong financial health score and more cash than debt on its balance sheet.
Pure Storage's licensing opportunity in the cloud was previously estimated at $800 million, and with the hyperscale win, the company anticipates "double-digit exabyte" shipments to the hyperscaler in calendar year 2026. The revenues from this deal will be derived from these shipments in addition to a services contract.
While some investors may view Pure Storage's success with the hyperscale client as a potential threat to hard disk drive (HDD) original equipment manufacturers (OEMs), the analyst noted that the annual nearline HDD capacity is currently at 1,000 exabytes, with an expected growth rate of over 20% per year.
Consequently, the firm does not foresee a risk to HDD OEMs from this development. With a market capitalization of $21.87 billion and revenue growth of 8.89%, InvestingPro reveals 10+ additional insights about Pure Storage's growth potential and market position in its comprehensive Pro Research Report. The increased price target reflects the optimistic outlook based on these factors.
In other recent news, Pure Storage has been gaining attention following several positive developments. The company reported strong third fiscal quarter results, with revenue and operating income surpassing guidance. Furthermore, Pure Storage announced a significant design win with one of the top four hyperscalers, a development expected to substantially impact the company's revenue and operating income in the calendar year 2026 and fiscal year 2027. This achievement led to several investment firms, including BofA Securities, Lake Street Capital Markets, Needham, and JPMorgan, raising their price targets for the company.
These recent developments also include an update to Pure Storage's fiscal 2025 revenue guidance, aiming for $3.5 billion, marking an 11.5% year-over-year growth. This increase is attributed to a rise in product revenue as some opportunities under $5 billion for the company's Evergreen One offerings have transitioned to traditional capital expenditure sales.
Despite these positive developments, BofA Securities maintains a Neutral stance on Pure Storage, considering the potential risks associated with a weakening macroeconomic environment. Analysts from Guggenheim, Evercore ISI, and Citi have all expressed confidence in the company's growth trajectory, with Guggenheim maintaining a Buy rating with a $93 price target, expecting a surge in revenue by fiscal year 2027. Evercore ISI projects the cloud partnership could become about 10% of the company's gross profit in FY27.
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