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Pure Storage share price climbs as Q1 earnings point to AI-driven demand

Derek du Preez Profile picture for user ddpreez May 30, 2024
Summary:
Pure Storage’s platform approach to data management appears to be resonating with buyers that are grappling with AI complexity.

Cloud computing technology and online data storage for global data sharing © NanoStockk - Canva.com
( © NanoStockk - Canva.com)

Pure Storage’s share price continues to climb, building on recent quarterly momentum, as the company’s platform approach to enterprise storage resonates with buyers that are figuring out how to execute on AI projects, which require a more sophisticated approach to data management.

The vendor has delivered a better-than-expected set of Q1 2025 earnings, which show solid growth across most metrics. We saw a similar jump in share price last quarter, as Pure’s AI position started to become clear. 

Speaking to analysts this week, CEO Charlie Giancarlo said: 

We are pleased with our Q1 performance, returning to double-digit revenue growth for the quarter. Our highly differentiated platform strategy continues to demonstrate success and rings true with customers. 

The recent advances in AI have opened up multiple opportunities for Pure in several market segments. 

Of greatest interest to the media and financial analysts has been the high-performance data storage market for large public or private GPU farms. A second opportunity is providing specialized storage for enterprise inference engine or RAG environments. The third opportunity, which we believe to be the largest in the long term, is upgrading all enterprise storage to perform as a storage cloud, simplifying data access and management, and eliminating data silos, enabling easier data access for AI.

The key numbers for the quarter include: 

  • Revenue $693.5 million, an increase of 18% year-over-year
  • Subscription services revenue $346.1 million, up 23% year-over-year
  • Subscription annual recurring revenue (ARR) $1.4 billion, up 25% year-over-year
  • Remaining performance obligations (RPO) $2.3 billion, up 27% year-over-year

Doubling down on the AI opportunity, Giancarlo added: 

Pure is seeing early success in all three of these AI-based opportunities, and we can address them all with our unified Purity platform. Unlike other vendors, we do not require different operating systems software to address different storage needs.

AI inevitably calls customers' attention to the fragmented state of their data caused by their disparate data storage infrastructure. Data stored on widely diverse platforms, with different operating and management systems, which are siloed and individually managed are unable to feed real-time data to AI inference engines.

Enterprise demand

The leadership at Pure believe that the company’s unified and integrated data storage strategy will enable customers with fast and accurate access to various data environments, allowing them to move beyond legacy silos. Better data access and simplified policies and management is the current focus being pursued. Giancarlo said that this approach has helped Pure secure enterprise deals during the quarter: 

Our platform vision played a crucial role in securing several strategic enterprise deals this quarter. The ease of use of our platform, and a notable interest in saving power and reduced environmental impact, led to a notable win with a managed service provider specializing in high-performance computing. Their accelerated environment for both large language models and inferencing delivers top-tier AI infrastructure and training solutions for their financial services, energy and life sciences customers.

In the Enterprise, we are seeing continued momentum and opening new opportunities with our cloud operating model. Enterprises want their data centers to operate the same way as cloud companies operate theirs. Customers should be able to automate and manage storage as virtualized clouds of storage, whether located on-prem or in the cloud.

However, despite the successful quarter, Giancarlo did warn that companies aren’t entirely out of the woods yet as it relates to macroeconomic headwinds and that certain sectors may be squeezed because of the pressure to spend big in AI. But he is positive about the storage market continuing to see success: 

Moving on to the market as a whole, we have not seen a significant change in the overall macro environment or customers' intentions to buy. While we have great enthusiasm for our opportunities in AI, spending on AI may put pressure on other parts of IT budgets. We believe that the storage market will fare relatively well in this IT economy, but have yet to see a major inflection. 

Overall, we believe that we are well positioned in all of the segments we compete in and we will continue to gain share across our markets. Our leadership position is now clearly demonstrated by our competitors' increased fervor to mimic our strategy and our messages.

My take

It’s certainly true that data management is at the forefront of buyers’ minds at the moment, with the ongoing desire to capitalize on the AI Spring we are seeing. The results of AI will only be as good as a company’s ability to surface and access quality data, something that has continuously been a challenge for organizations over the past decade. Pure’s subtle shift away from purely storage to data management is a smart one and we expect more of this to be delivered at its Accelerate event in a couple of weeks - where diginomica will be on the ground with analysis of the key announcements. 

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