PSTG Q3 Deep Dive: Enterprise, Hyperscaler Demand Fuel Growth Amid Margin Pressure

Data storage solutions provider Pure Storage (NYSE:PSTG) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 16% year on year to $964.5 million. Guidance for next quarter’s revenue was better than expected at $1.03 billion at the midpoint, 0.7% above analysts’ estimates. Its non-GAAP profit of $0.58 per share was in line with analysts’ consensus estimates.

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StockStory’s Take

Pure Storage’s third quarter results were met with a significant negative market reaction, driven by concerns over declining operating margins despite strong year-on-year revenue growth. Management attributed the quarter’s performance to sustained enterprise demand and rapid adoption of its Evergreen One and modern virtualization solutions. CEO Charlie Giancarlo emphasized, “Our results were underpinned by continued strength in enterprise and sustained momentum in our Evergreen One and modern virtualization solutions.” The company also noted that shipments to hyperscale customers exceeded full-year forecasts earlier than anticipated, supporting the quarter’s top-line growth.

Looking forward, management expects continued momentum in enterprise and hyperscale segments, supported by ongoing investments in research and development and expanded product offerings. The company highlighted the potential for higher commodity prices to lift overall market revenue, although this may bring new margin dynamics. CFO Tarek Robbiati stated, “We are planning to capitalize on the financial benefits from hyperscaler revenues to continue making significant incremental investments in R&D and sales and marketing.” Management also cautioned that new business models with hyperscalers may alter gross margin economics in the coming year.

Key Insights from Management’s Remarks

Management attributed the quarter’s results to robust demand in both enterprise and hyperscaler markets, alongside traction for newer software and cloud solutions. Margin pressures and supply chain dynamics were also central topics.

• Enterprise and hyperscaler strength: Management reported robust growth from enterprise clients and hyperscaler shipments, with shipments to hyperscalers surpassing annual targets earlier than expected. This performance was driven by the adoption of Pure’s Purity operating system and the Evergreen subscription model.
• Momentum in subscription services: The company’s Evergreen One and modern virtualization solutions, including Cloud Block Store and Portworx, saw strong adoption, reflecting a shift toward subscription-based and cloud-native architectures across the customer base.
• Product mix and margin dynamics: Higher-end configurations and an expanded mix of software term licenses contributed to strong product gross margins, even as management acknowledged long-term margins are expected to normalize in the 65-70% range. Portworx and Fusion software adoption played a key role.
• Supply chain and inventory strategy: In response to tightening hardware component markets, Pure Storage increased tariff mitigation purchases and secured key parts to sustain supply chain continuity. Management noted that these actions supported operations but indicated ongoing vigilance is needed for future component cost pressures.
• Leadership and go-to-market changes: The company appointed Pat Finn as chief revenue officer, aiming to further scale sales and enhance global enterprise relationships. This transition was highlighted as part of Pure’s strategy to deepen penetration in high-growth markets.

Drivers of Future Performance

Pure Storage’s outlook is shaped by continued enterprise and hyperscaler momentum, new product investments, and evolving commodity pricing and margin structures.

• Investment in R&D and go-to-market: Management plans to allocate increased resources to research, development, and sales channels, with a focus on expanding the direct flash roadmap and addressing more price-performance tiers. These investments are expected to support growth in key markets such as AI and modern virtualization.
• Hyperscaler business model evolution: The company is evaluating new revenue models for hyperscaler customers, which may result in changing gross margin profiles in the coming year. Management indicated that while current hyperscaler software licensing brings high margins, future models could introduce variability depending on customer preferences and contract structures.
• Commodity pricing and market impacts: Higher memory and component costs are likely to influence both revenue and margin outcomes. Management believes that rising prices could increase overall market revenue, though there is some risk that customer demand may moderate if prices remain elevated for extended periods. The company’s Evergreen One model offers some insulation from spot pricing volatility.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will be watching (1) the pace of adoption for new enterprise and hyperscaler deployments, (2) the impact of evolving revenue models on gross margins—especially in the hyperscaler channel, and (3) how supply chain dynamics and commodity pricing trends affect cost structure and inventory management. Execution on R&D investments and the rollout of features like AI Copilot and Fusion will also be key indicators of competitive position.

Pure Storage currently trades at $85.10, down from $94.85 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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