Can Pure Storage's Hyperscaler Strategy Drive Long-Term Growth?

Pure Storage’s PSTG expanding hyperscaler business is emerging as a meaningful driver of its growth strategy, as demand for high-performance, energy-efficient storage accelerates amid the proliferation of AI and large-scale cloud workloads.

On the last earnings call, Pure Storage noted that year-to-date hyperscale shipments through the third quarter of fiscal 2026 already exceeded its original fiscal-year target of 1-2 exabytes, with additional shipments expected in the fiscal fourth quarter.

The company highlighted DirectFlash technology as a key differentiator, enabling it to compete in the hyperscale market, where traditional storage system vendors face various constraints.

In the fiscal third quarter, product gross margins benefited from hyperscale shipments along with other factors, driving overall gross margin to 74.1%. Pure Storage expects momentum in the hyperscaler business to continue in the fiscal fourth quarter and fiscal 2027.

Pure Storage, Inc. Price, Consensus and EPS Surprise

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

Management also highlighted that hyperscaler revenues were a factor behind the company’s increased operating profit guidance for fiscal 2026, which now implies more than 330 basis points of improvement compared with prior expectations.

Moving forward, PSTG plans to reinvest the financial benefits from hyperscaler revenues into research and development and sales and marketing to sustain momentum across its broader enterprise and AI initiatives.

While management will no longer provide detailed hyperscaler shipment disclosures, Pure Storage noted that it is focused on growing the hyperscaler business and will evaluate additional business model options that could change gross margin economics in fiscal 2027 compared with fiscal 2026.  

The commentary surrounding hyperscale business suggests that this business is not meant to be just a short-term revenue opportunity, but a strategic lever to expand Pure Storage’s addressable market and support long-term growth.

Let’s Look at Rivals’ Hyperscaler Ties

NetApp NTAP is one of Pure Storage’s direct competitors. On the last earnings call, NTAP highlighted that All-Flash and Public Cloud solutions accounted for 70% of second-quarter fiscal 2026 revenues, underscoring its strategic alignment with hyperscale and cloud-centric workloads.

Solid momentum in hyperscaler first-party and marketplace storage services has been driving revenue growth in the Public Cloud segment. The Public Cloud segment’s revenues improved 2% to $171 million. Excluding Spot, Public Cloud revenues grew 18% year over year.  First-party and marketplace cloud storage services grew 32%. NetApp’s partnerships with major hyperscalers such as Amazon and Microsoft, through offerings like Amazon FSx for NetApp ONTAP and Microsoft Azure NetApp Files, solidify its position as a critical player in the cloud infrastructure space, which is poised for continued growth as enterprises migrate more workloads to the cloud.

Seagate Technology STX reported record exabyte shipments of 190 exabytes in the second-quarter fiscal 2026, up 26% year over year, with 165 exabytes shipped to data center customers, underscoring the scale at which it serves hyperscalers.

The company is operating in a very strong demand environment, especially in data center markets. The December quarter showed steady growth in high-capacity nearline drive demand across global cloud customers and continued improvement at the enterprise edge — a momentum Seagate expects to sustain given its robust build-to-order pipeline. Seagate’s areal-density-driven strategy aligns well with the long-term growth of AI-generated data, suggesting sustained demand beyond short-term cycles.

PSTG Price Performance, Valuation and Estimates

Shares of PSTG have lost 2.6% in the past month against the Electronics-Semiconductors industry’s growth of 37.3%.

Regarding the forward 12-month price/earnings ratio, PSTG is trading at 34.39, higher than the sector’s multiple of 20.36.

The Zacks Consensus Estimate for PSTG’s earnings for fiscal 2026 has been revised upward marginally over the past 60 days.

PSTG currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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