Last Update 20 Jan 26

PSTG: AI Storage Demand And Cisco Partnership Will Support Future Upside

Analysts have modestly lifted their price targets on Pure Storage, with recent moves such as JPMorgan shifting to a Positive Catalyst Watch and raising its target to US$110, alongside Morgan Stanley moving to US$90. These changes are largely tied to expectations that AI related demand can support near term revenue and earnings while the stock continues to trade on a premium P/E multiple.

Analyst Commentary

Bullish Takeaways

Bullish analysts point to AI related demand as a potential support for near term revenue and earnings, which they see as important for justifying Pure Storage's premium P/E multiple.
JPMorgan moving Pure Storage to a Positive Catalyst Watch and lifting its target to US$110 from US$105 signals confidence that upcoming catalysts could be helpful for sentiment around execution.
Recent target hikes suggest some analysts are comfortable with the stock's premium valuation, as long as Pure Storage continues to show it can benefit from AI linked workloads.
Supportive commentary around AI leveraged companies more broadly indicates that, in the eyes of bullish analysts, Pure Storage is grouped with peers that could reassure investors through near term results.

Bearish Takeaways

Bearish analysts highlight investor concerns about how long AI demand can support current multiples, which can limit upside if revenue or earnings growth does not keep pace with expectations.
Some caution that Pure Storage already trades at a premium valuation, which leaves less room for execution missteps or slower adoption without putting pressure on the share price.
There is skepticism about adoption beyond Pure Storage's core enterprise customers, with some analysts wanting clearer evidence of broader customer uptake before becoming more positive.
The moderation in AI led valuation premiums mentioned by JPMorgan underscores the risk that enthusiasm around AI might not fully translate into sustained support for high multiples over time.

What’s in the News

Pure Storage and Cisco announced a new FlashStack Cisco Validated Design as part of Cisco’s Secure AI Factory with NVIDIA. The initiative aims to provide a unified, production grade platform to help enterprises move from AI pilots to larger deployments, with an emphasis on data pipelines and Storage as a Service across on premises, cloud, and hosted environments (Key Developments).
Pure Storage provided earnings guidance for the fourth quarter of fiscal 2026, with expected revenue in the range of US$1.02b to US$1.04b and a year on year revenue growth rate of 16.5% to 17.6% (Key Developments).
For fiscal 2026, Pure Storage issued updated earnings guidance, stating expected revenue in the range of US$3.63b to US$3.64b and a year on year revenue growth rate of 14.5% to 14.9%. This compares with prior guidance of US$3.60b to US$3.63b and a year on year growth rate of 13.5% to 14.5% (Key Developments).
Between August 4, 2025 and December 10, 2025, Pure Storage repurchased 1,109,101 shares for US$89.5 million, completing a total repurchase of 8,190,911 shares for US$480 million under the equity buyback plan announced on February 28, 2024 (Key Developments).
On December 10, 2025, Pure Storage announced a change to its equity buyback plan, increasing the authorization by US$400 million to a total of US$900 million (Key Developments).

Valuation Changes

Fair Value: Model fair value is unchanged at US$95.16.
Discount Rate: The discount rate has edged slightly lower from 8.22% to 8.19%.
Revenue Growth: The forecast revenue growth assumption remains effectively unchanged at 16.26%.
Net Profit Margin: The long-run net profit margin estimate is effectively flat at about 10.00%.
Future P/E: The assumed future P/E multiple is slightly higher, moving from 74.69x to 75.28x.

Accelerating adoption of Pure's data cloud and subscription offerings positions the company for long-term growth, improved revenue predictability, and higher gross margins.
Strategic hyperscaler partnerships and success in high-performance hardware enhance premium pricing power, create new revenue streams, and drive share gains in demanding enterprise segments.
Heavy focus on traditional products and uncertain cloud transition, combined with rising competition and unpredictable demand, threaten recurring revenue growth and margin stability.

Catalysts

About Pure Storage

Engages in the provision of data storage and management technologies, products, and services in the United States and internationally.What are the underlying business or industry changes driving this perspective?

The adoption of Pure's Enterprise Data Cloud architecture and software-defined solutions is accelerating among large enterprises, driven by the need to manage rapidly growing and increasingly valuable data assets in the evolving AI economy; this positions Pure to capture rising long-term revenue from digital transformation and AI/ML-driven workloads.
Strategic wins and expanding co-engineering relationships with hyperscalers (e.g., Meta) are creating new high-margin royalty and software revenue streams, and ongoing early-stage engagements with additional hyperscalers signal potential for material upside to revenue and gross margin as cloud infrastructure investments scale.
Momentum in subscription-based offerings like Evergreen//One and Cloud Block Store-demonstrated by strong annual recurring revenue (ARR) growth, a rising share of total revenue, and robust RPO backlog-improves revenue predictability, reduces earnings volatility, and supports higher overall gross margin.
The success of new hardware launches targeting high-performance AI and data analytics workloads (e.g., FlashBlade//EXA, FlashArray//XL R5) is capturing share in the most demanding enterprise segments, enabling premium pricing and driving expansion in gross margin and product revenue.
Pure's all-flash solutions continue to attract organizations focused on lowering TCO and meeting sustainability/efficiency mandates, as evidenced by customer reports of major reductions in space, power, and cooling requirements (~70%), supporting both top-line growth from new wins and higher net margins via operational efficiency.

Pure Storage Earnings and Revenue Growth

Pure Storage Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Pure Storage's revenue will grow by 15.2% annually over the next 3 years.
Analysts assume that profit margins will increase from 4.2% today to 11.2% in 3 years time.
Analysts expect earnings to reach $571.5 million (and earnings per share of $1.4) by about September 2028, up from $139.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $688.9 million in earnings, and the most bearish expecting $327.9 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 56.5x on those 2028 earnings, down from 186.0x today. This future PE is greater than the current PE for the US Tech industry at 24.3x.
Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.03%, as per the Simply Wall St company report.

Pure Storage Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Pure Storage's heavy emphasis on physical and hybrid storage products, along with its noted challenges in accurately forecasting the mix between as-a-service (Evergreen//One) and product revenues, may hinder its ability to fully transition to scalable, cloud-native services at the pace required by the market-potentially capping recurring revenue growth and predictability.
While current financials show strong margins (72.1% total gross margin, 76.5% subscription margin), the company acknowledges the need for ongoing heavy R&D and infrastructure investment to support hyperscaler deployments and data center expansion, introducing a risk of margin compression and higher operating expenses if revenue growth does not outpace these investments.
Pure Storage's ongoing efforts to win business from hyperscalers (like Meta and others) are still in early-stage engagements, with management repeatedly stating that most of this revenue is not yet material; this introduces substantial uncertainty and potential volatility in future large-scale contract wins, impacting both future revenues and net earnings.
The company faces growing competition, including from large incumbents and niche players, in AI, HPC, neo-cloud, and cloud-native storage spaces; increased price-based competition or technological disruption (e.g., open-source, software-defined storage) could erode market share and average selling prices, negatively affecting top-line growth and profit margins.
Pure Storage's financial guidance now incorporates a range rather than a single target, attributed partly to increased market and macroeconomic uncertainty; this suggests potential unpredictability in demand, product mix, or macro conditions, which could result in missed revenue, operating profit, or margin targets in the future.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $78.5 for Pure Storage based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $93.0, and the most bearish reporting a price target of just $55.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.1 billion, earnings will come to $571.5 million, and it would be trading on a PE ratio of 56.5x, assuming you use a discount rate of 8.0%.
Given the current share price of $79.21, the analyst price target of $78.5 is 0.9% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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