Pure Storage Inc. NYSE: PSTG delivered earnings on the same day as NVIDIA Corp. NASDAQ: NVDA. While the company’s report didn’t garner enough interest for a watch party like that of NVIDIA, there are a couple of points from NVIDIA’s earnings report that can apply to your outlook for Pure Storage.
$51.29 +0.97 (+1.93%) (As of 08/30/2024 ET)52-Week Range$31.00▼$70.41P/E Ratio183.18Price Target$65.85
Pure Storage provides data storage and management technologies, products, and services to a global customer base. Data centers are needed for the growth of artificial intelligence (AI), which is why investors have driven the PSTG stock price up 67.6% in 2024. Get Pure Storage alerts:Sign Up
At first glance, the report’s headline numbers were fine on the top and bottom lines. Revenue of $763.77 million was above estimates and 11% higher year-over-year (YoY). The bottom line was even better, with non-GAAP earnings per share (EPS) of 44 cents coming in 29% higher YoY. The company’s non-GAAP gross margin was flat at 72.8%.
Pure Storage’s Earnings Report: Good Is Not the Same as Great
However, like NVIDIA and other technology stocks, Pure Storage stock dropped sharply after the report. As of midday trading the day after earnings, the stock is down 14.5%.
The company reiterated its guidance on the top and bottom lines. However, Pure Storage lowered its guidance for total contract value (TCV) sales for two of its subscription service offerings by $100 million from $600 million to $500 million. That lowers YoY growth estimates in that category from 50% to 25%.
That’s not the kind of guidance that a company can get away with when it has forward price-to-earnings (P/E) of 127x. But once again, if you look at the NVIDIA earnings call, you may have more reason to be bullish on Pure Storage.
Pure Storage May Be Setting the Bar Low
One reason NVDA stock is selling off is the company’s future YoY comparisons, which will be more difficult. Pure Storage has faced difficult comparisons with mixed results in the past four quarters. One way around that is to lower expectations. This wouldn’t be without merit. Heading into earnings season, a major concern weighing on investors was the extent of CAPEX spending on AI from companies like data centers that need to buy NVIDIA products.
An accurate, albeit simplistic, way to look at this is lower NVIDIA demand would be bearish for Pure Storage. However, that wasn’t what investors heard from NVIDIA chief executive officer Jensen Huang, who made his case for why data centers and hyperscalers will need to continue spending on AI.
The takeaway is that data centers are only just beginning to transition to the accelerated processing required for AI and machine learning (ML). That’s not only bullish for NVIDIA, but for companies like Pure Storage and its Purity storage platform.
On the earnings call, Pure Storage chief executive officer (CEO) Charles Giancarlo highlighted the growing need for GPUs along with specialized storage for enterprise customers while mentioning that the company’s customer base includes approximately 60% of the Fortune 500, including over 100 AI customers. Notably, however, the company has yet to secure its first hyperscaler client. But it does expect to do so by the end of the calendar year.
Analysts Are Lowering Their Price Targets
Overall MarketRank™4.88 out of 5 Analyst RatingModerate Buy Upside/Downside30.5% Upside Short InterestHealthy Dividend StrengthN/A Sustainability-1.11 News Sentiment0.30 Insider TradingSelling Shares Projected Earnings Growth63.83% See Full Details
Purely based on its relative strength indicator (RSI), PSTG stock looks oversold. As of this writing, it trades at $50.88 per share, which puts it near a line of support it confirmed in May 2024.
Taking a longer-term view, your decision to buy Pure Storage stock may be influenced by the analysts’ outlook. Since the company reported earnings, the Pure Storage analyst forecasts on MarketBeat show eight analysts lowering their price targets, with several of those targets coming in below the consensus price of $66.40. UBS Group is particularly bearish, with a price target of $45, down from $47.
However, none of those analysts have changed their rating on the stock, which retains its consensus Moderate Buy rating. Before you consider Pure Storage, you’ll want to hear this.MarketBeat keeps track of Wall Street’s top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… and Pure Storage wasn’t on the list.While Pure Storage currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.View The Five Stocks Here Which stocks are likely to thrive in today’s challenging market? Click the link below and we’ll send you MarketBeat’s list of ten stocks that will drive in any economic environment.Get This Free Report
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