Piper Sandler began coverage on shares of Pure Storage (NYSE:NYSE:PSTG), assigning a Neutral rating with a price target of $60.00. The firm's valuation of Pure Storage is based on a 24 times enterprise value to the estimated calendar year 2025 earnings before interest, taxes, depreciation, and amortization (EV/CY25E EBITDA) multiple.
Pure Storage, known for its all-flash-based portfolio, has been recognized in the information technology data storage market, which is generally characterized by slower growth. However, the market is currently experiencing a shift toward all-flash solutions like those offered by Pure Storage, and there's an anticipation of increased spending driven by artificial intelligence (AI) data center constructions.
Pure Storage has been gaining market share within the all-flash segment due to its distinctive technical capabilities, which offer a lower total cost of ownership (TCO), alongside higher available capacity, density, and reliability.
These features have attracted the attention of larger enterprises, cloud service providers, and AI industry leaders, subsequently creating an "AI buzz" around Pure Storage's shares.
The company's Storage-as-a-Service (STaaS) offerings have demonstrated very strong growth, which is expected to continue. However, this rapid expansion could potentially lead to aggressive growth estimates in the near to medium term.
Despite the positive outlook on Pure Storage's role in the AI sector, Piper Sandler suggests that the current valuation is near the higher end of the historical range. As a result, the firm recommends waiting for a more favorable entry point before investing in what they consider a probable AI market success.
Pure Storage has seen considerable developments. UBS downgraded the company's stock from Neutral to Sell, citing concerns over slowing growth and market share decline, while raising the price target to $47. Analysts predict Pure Storage's growth will halve over the next five years, and its market share in the all-flash array segment will plateau at around 15%.
Despite this, Pure Storage reported a substantial 18% year-over-year revenue increase in the first quarter of fiscal year 2025, reaching $693 million, with a record first-quarter operating profit of $100 million.
Pure Storage also announced a strategic investment in LandingAI, aiming to enhance the capabilities of visual AI within the enterprises it serves.
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