Pure Storage Margin To Expand From NAND Pricing Weakness: Analyst

B of A Securities analyst Wamsi Mohan revised full-year estimates for Pure Storage, Inc. PSTG ahead of its earnings release on May 28.

The analyst forecasts first quarter fiscal 2026 revenue and EPS at $772 million and 26 cents, respectively, slightly ahead of Street expectations of $770 million and 25 cents.

The analyst highlighted that the first quarter is typically the company’s weakest from a seasonal perspective. Historically, since 2016, the first quarter has shown an average sequential revenue decline of 16%.

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Mohan sees a more moderate 12% quarter/quarter (Q/Q) decline, slightly above typical seasonality, reflecting continued momentum from FlashBlade/E adoption.

Despite the continued adoption of FlashBlade/E, which is expected to negatively impact product margins in the first fiscal quarter, the analyst forecasts an operating margin of 10.7%.

This is higher than both the Street’s estimate of 10.6% and the company’s guidance of 10.4%. The analyst noted that the primary driver for this stronger-than-expected operating margin is robust subscription margins.

Also, the analyst estimates the second quarter revenue to be $835 million, slightly below the Street estimate of $839 million.

The analyst expects the recent weakness in NAND pricing to support margin expansion in the second and third quarters. PSTG typically prebuys raw NAND during weakness in NAND pricing, and the analyst expects some offset to margins from this.

The analyst anticipates PSTG to reiterate its full-year operating margin guidance of 17%.

Mohan expects an enterprise IT spending pause in the second and third quarters of 2025 due to macro uncertainty, broadly impacting IT hardware but especially storage (due to deferrable purchases). Increased competition from Dell Technologies Inc.’s DELL new products and aggressive pricing is also expected to limit the upside in the storage industry.

Apart from this, Mohan revised EPS for FY27 to $2.07 (from $2.06) and FY28 to $2.46 (from $2.49 earlier).

The analyst states the upside risks to the price forecast include a faster commercial segment recovery, lower flash costs, quicker supply chain recovery, and unexpected market share gains.

The downside risks are an extended economic slowdown, rising costs, intense competition from established vendors (NetApp, Inc. NTAP, Dell-EMC, Hewlett Packard Enterprise HPE) and private companies, enterprise migration to the public cloud, execution challenges from high growth, and potential erosion of its software competitive advantage.

The analyst maintained a Neutral rating with a price forecast of $73 as product growth has yet to re-accelerate, hyperscaler deals remain a future catalyst, and competitive pressure from HDD and ongoing investments present margin risk.

Investors can gain exposure to the stock via First Trust Cloud Computing ETF SKYY and Collaborative Investment Series Trust Mohr Company Nav ETF CNAV.

Price Action: PSTG shares are trading lower by 0.08% to $55.40 at last check Tuesday.

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