Pure Storage Up 69% in 3 Months: Where Will the Stock Head From Here?

Pure Storage, Inc. PSTG stock has been an impressive performer in the tech space, with a gain of 68.6% in the past three months, outperforming the Zacks Computer-Storage Devices industry, the Zacks Computer and Technology sector and the S&P 500 composite’s growth of 35.4%, 13.2% and 7.6%, respectively.

Price Performance

The rally reflects investors’ growing confidence in its AI-driven tailwinds, subscription-based growth model and demand for flash-based storage solutions. Yet, the steep run-up poses an inevitable question. Can this momentum be sustained or is it wise to lock in profits and exit? 

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

PSTG’s Rally Backed by Multiple Tailwinds

PSTG is witnessing strong demand from large enterprises, ongoing momentum in FlashBlade, particularly FlashBlade//E and accelerating adoption of its core software and services offerings, including Evergreen//One, Cloud Block Store and Portworx.  Accelerating recurring revenues & subscriptions is another catalyst. In the last reported quarter, Subscription services revenues (48.2%) of $414.7 million rose 14.8%. Subscription annual recurring revenues amounted to nearly $1.8 billion, up 18% on a year-over-year basis.

Expanding portfolio designed for AI workloads will aid in boosting top-line momentum. A key highlight of the fiscal second quarter was the introduction of the Enterprise Data Cloud (“EDC”), a new architectural paradigm for data and storage management. Enhanced with Fusion v2, Purity enables customers to build their own EDC, automating storage and delivering software-defined data management. 

It recently announced enhancements to the Pure Storage Platform. This will aid businesses in making full use of AI in streamlining workflows across on-premises and cloud environments. The enhancements include the newly announced Pure Storage Cloud Azure Native (generally available now) and Portworx by Pure Storage Integration with Pure Fusion (generally available first half of fiscal 2027) services. Pure Key Value Accelerator Integration with NVIDIA Dynamo for AI Inference will be generally available from the fourth quarter of fiscal 2026.  

The lineup of new storage products is also expanding. The FlashArray//X R5 and FlashArray//C R5 are now generally available. The FlashArray//XL 190 will be generally available in the fourth quarter of fiscal 2026.

Pure Storage, Inc. Price, Consensus and EPS Surprise

Pure Storage, Inc. price-consensus-eps-surprise-chart | Pure Storage, Inc. Quote

During the fiscal second quarter, PSTG expanded its Flash portfolio with a suite of next-gen storage systems, designed for performance, scale and versatility. These are FlashArray//XL, FlashArray//ST and FlashBlade//S, designed to address high-performance, scalable workloads while offering unified block, file and object storage capabilities. By broadening the product portfolio, Pure Storage is strengthening its foothold across industries, ranging from financial services and healthcare to AI-driven startups and large-scale cloud providers. 

Pure Storage’s strategic tie-up with Meta Platforms has moved to first volume deployment, with revenues being recognized in the fiscal second quarter. PSTG also highlighted that other hyperscalers are also evaluating DirectFlash to replace HDD/SSD, given significant gains in performance and cooling efficiency. Management reiterated that it remains confident of deploying 1-2 exabytes of DirectFlash technology by fiscal 2026 and “possibly more.”

Given these tailwinds, it now expects revenues in the range of $3.6 billion to $3.63 billion, indicating 14% year-over-year growth at the midpoint for fiscal 2026. This is 300 basis points higher than the earlier guided 11% growth to $3.515 billion.

Following the outlook revision, analysts seem bullish about the stock, as implied by the upward revision in earnings estimates.

Shareholder Plans Enhance PSTG’s Appeal

Pure Storage has a strong balance sheet and an ample liquidity position. It exited the fiscal second quarter, which ended on Aug. 3, with cash and cash equivalents and marketable securities of $1.5 billion. Cash flow from operations amounted to $212.2 million and free cash flow was $150.1 million in the fiscal second quarter. 

The company returned $42 million to its shareholders by repurchasing 0.8 million shares in the fiscal second quarter. Pure Storage has $109 million left under its current authorization plan.

Challenges Remain for PSTG

Despite a strong quarterly performance, Pure Storage is not immune to economic pressures. On the last earnings call, management explicitly acknowledged that “global macro environment remains as variable and as uncertain as ever.” If macro uncertainty intensifies, enterprises may delay cloud migrations, containerization, or AI-related storage projects, creating downside to PSTG’s revenue growth.

Pure Storage faces intensifying competition in the flash-based storage market from both new and incumbent players who are also vying aggressively for cloud and AI storage opportunities.

PSTG’s Expensive Valuation a Concern

PSTG stock is trading at a premium with a forward 12-month Price/Earnings of 39.34X compared with the industry’s 22.39X.

Our Final Take on PSTG: Hold for Now

PSTG carries a Zacks Rank #3 (Hold) at present. We believe new investors should wait for a better entry point and existing investors should retain PSTG stock, given that its long-term growth remains intact.

Stocks to Consider

Some better-ranked stocks from the broader technology space are Western Digital Corporation WDC, Seagate STX and Micron Technology MU, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for WDC’s fiscal 2026 EPS is pegged at $6.62, unchanged in the past seven days. WDC’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 6.77%. Its shares have increased 66.9% in the past year.

The Zacks Consensus Estimate for STX’s fiscal 2026 earnings is pegged at $10.52 per share, unchanged in the past seven days. STX’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 6.99%. The share price has skyrocketed 89.5% in the past year.

The Zacks Consensus Estimate for Micron’s fiscal 2026 EPS is pegged at $16.58. Micron’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 9.36%. Its shares have surged 71.2% in the past year.

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This article originally published on Zacks Investment Research (zacks.com).

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