Pure Storage Rides the AI Wave with Impressive Q3 Results
The artificial intelligence (AI) revolution is driving the demand for low latency, scalable, and reliable data storage and capacity. Pure Storage Inc. (NYSE: PSTG) is a key player in enterprise data storage, known for its all-flash solid-state drive (SSD) arrays. This technology leader is benefiting from two major trends: the rise of AI and the shift in storage modernization. Pure Storage’s Flash Arrays provide real-time data access, eliminating the need to transfer data from one silo to another. The company serves over 13,000 customers, including 62% of the Fortune 500, offering storage-as-a-service (SaaS) solutions across multi-cloud and hybrid cloud environments.
Its FlashBlade platform enables rapid access to both static and dynamic data, facilitating real-time data streaming. Recently, the company unveiled GenAI pods, which are turnkey systems designed specifically for generative AI workloads, allowing businesses to quickly deploy AI solutions.
Industry Breakthrough with a Leading Hyperscaler
In its Q3 announcement, Pure Storage revealed a groundbreaking design win with a major top-four hyperscaler. While the specific company was not disclosed, it enhances Pure Storage’s DirectFlash technology in large-scale environments, which are currently dominated by hard disk drives from Seagate Technology Holdings plc (NASDAQ: STX) and Western Digital Co. (NASDAQ: WDC). The potential hyperscalers involved could include Microsoft Co. (NASDAQ: MSFT), Amazon.com Inc (NASDAQ: AMZN), Alphabet Inc. (NASDAQ: GOOGL), or Meta Platforms Inc. (NASDAQ: META).
CEO Charles Giancarlo remarked, “Pure Storage has achieved another industry first in our journey of data storage innovation with a transformational design win for our DirectFlash technology in a top-four hyperscaler.” He emphasized that this breakthrough positions Pure’s Flash technology to become the benchmark for hyperscaler online storage, enhancing performance, scalability, and reducing operational costs.
Q3 Growth Surprises with Positive Guidance
In Q3 2024, Pure Storage posted earnings of 50 cents per share, surpassing analyst expectations by 9 cents. Revenue increased by 9% year-over-year to $831.1 million, exceeding the $814.9 million consensus estimates. Subscription and annual recurring revenue (ARR) climbed 22% year-over-year to $1.6 billion, while remaining performance obligations (RPO) rose 16% to $2.4 billion. At the end of the quarter, the company held $1.65 billion in cash and marketable securities. Additionally, Pure Storage repurchased 3.6 million shares, returning $182 million to investors.
The company provided an optimistic revenue forecast for Q4 2024, projecting $867 million compared to the consensus estimate of $855.87 million, along with a non-GAAP operating margin of 15.6%.
PSTG Develops a Cup Pattern in Stock Charts
A cup pattern emerges when stock prices peak at a swing high, fall to a swing low, and then recover back to retest the initial peak.
PSTG established the cup lip line at $70.41 on June 18, 2024, before dropping to a $44.73 low and then rallying towards $58.20. Following the announcement of solid Q3 results and improved Q4 guidance, PSTG has established a gap-fill channel between $53.79 and $60.28. The stock needs to return to the cup lip line resistance at $70.41 to complete the cup pattern, potentially forming a handle on the pullback. The daily anchored VWAP is positioned at $49.86, while the daily RSI is trending near the 71-band. Fibonacci support levels are identified at $60.28, $55.33, $52.38, and $47.97.
PSTG’s average consensus price target stands at $72.10, indicating an 11% upside, while the highest analyst target is $93.00. Among analysts, fifteen have assigned Buy ratings, six have Hold ratings, and one has issued a Sell rating, with a short interest of 2.83% on the stock.
Potential Investment Strategies: Investors optimistic about PSTG may consider cash-secured puts at Fibonacci pullback support levels. Should these shares be assigned, writing covered calls at upside Fibonacci levels could initiate a wheel strategy for generating income.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
