As of December 3, 2025, Pure Storage, Inc. (NYSE: PSTG) has gone from AI darling to one of the day’s biggest losers on Wall Street. After reporting strong third-quarter fiscal 2026 results, the all-flash data storage specialist saw its stock price collapse by roughly 26% to about $70, cutting deeply into gains that had left it near a 52‑week high above $100 earlier this week. [1]
Despite the violent reaction, the company’s fundamentals and analyst forecasts tell a more nuanced story—one that’s less about collapsing demand and more about valuation, margins, and the cost of chasing AI hyperscaler growth.
What Just Happened to Pure Storage Stock?
Pure Storage released its Q3 fiscal 2026 results (quarter ended November 2, 2025) after the market close on December 2. The headline numbers were objectively strong:
- Revenue: $964.5 million, up 16% year over year, and slightly ahead of expectations around $956 million. [2]
- Subscription services revenue: $429.7 million, up 14% year over year. [3]
- Subscription ARR: $1.8 billion, up 17% year over year. [4]
- Remaining performance obligations (RPO): $2.9 billion, up 24% year over year. [5]
On profitability:
- GAAP operating income: $53.9 million
- Non‑GAAP operating income: $196.2 million
- GAAP operating margin: 5.6%
- Non‑GAAP operating margin: 20.3% [6]
Yet net profit actually fell: SDxCentral notes net income slipped to $54.8 million, down from $63.6 million a year earlier, even as operating income rose—evidence that higher spending is starting to bite. [7]
At the same time, Pure raised its full‑year fiscal 2026 guidance:
- Revenue: now $3.63–$3.64 billion (previously $3.60–$3.63 billion), implying 14.5–14.9% growth. [8]
- Non‑GAAP operating income: now $629–$639 million (up from $605–$625 million), implying 12.4–14.2% growth. [9]
In other words: revenue beat, record operating profit, higher guidance—exactly the kind of update that usually pushes a popular growth stock up, not down.
But heading into earnings, Pure Storage was priced for perfection. TD Cowen recently noted the stock had returned about 77% over the past year and was trading near a 52‑week high of $100.59, with investors heavily focused on AI‑driven upside. [10]
That set the stage for any hint of margin pressure or spending acceleration to trigger a sharp re‑rating—and that’s precisely what happened.
Why Did PSTG Plunge If the Quarter Was “Good”?
1. Rising Investment and Margin Anxiety
Management made it clear on the earnings call and in its press release that Pure plans to “make significant incremental investments” in R&D and sales & marketing to capture long‑term AI and cloud opportunities beyond fiscal 2026. [11]
Several outlets and analysts highlighted that:
- Net profit declined year over year despite solid revenue growth, as spending increased on AI and “neocloud” initiatives. [12]
- Management flagged that hyperscaler business models could change in fiscal 2027, potentially altering gross margin economics compared with 2026. [13]
Barron’s reports that investors worry that Pure plans to plow much of its AI‑related hyperscaler revenue back into growth initiatives, which could cap margin expansion in the medium term. [14]
In short, the message to the market was:
“The business is strong and getting stronger, but we’re going to spend heavily to keep it that way.”
For a stock that had already enjoyed a powerful AI‑themed rally, that was enough to trigger a reset in expectations.
2. Sky‑High Expectations and Valuation
Before the sell‑off, Pure Storage traded near $95–$100, implying a rich valuation. TD Cowen recently estimated its calendar‑year 2025 operating margin (~17%) lags NetApp’s projected ~29%, intensifying scrutiny of how much Pure must spend to secure hyperscaler wins. [15]
- As of this afternoon, at around $70 per share, Pure trades on a trailing P/E near 128 based on current EPS, with a market cap of about $17.8 billion. [16]
- Using consensus 2026 EPS of $1.99, the implied forward P/E is roughly mid‑30s, still demanding but notably lower than the trailing multiple. [17]
Analysts and commentary pieces repeatedly pointed out that PSTG had become a “high‑expectation” AI infrastructure stock, leaving little room for any ambiguity around long‑term margin structure. [18]
3. Uncertainty Around Hyperscaler Economics
Pure has leaned hard into AI‑driven hyperscaler demand, shipping flash capacity to large cloud customers—including Meta Platforms—and positioning itself as a key storage backbone for GPU‑rich data centers. [19]
But there are two worries:
- The company exceeded its full‑year forecast of 2 exabytes of hyperscaler shipments in Q3 and expects more in Q4, suggesting that the hyperscaler mix will keep growing—and with it, potential pricing and margin pressure. [20]
- Barron’s notes that revenue from AI hyperscaler deals will be reinvested rather than allowed to drop straight to the bottom line, and Susquehanna flagged concerns about the scalability of Pure’s embedded SSD footprint versus the total addressable market. [21]
Investors love growth. They just want to know how profitable that growth will be—and when.
What the Latest Numbers Say About the Business
Stripping away the stock chart, Pure’s operating metrics remain impressive:
- Core growth: Revenue up 16%, with recurring subscription revenue growing double‑digits and RPO growing even faster at 24%. [22]
- Enterprise momentum: Management highlighted strength in enterprise customers, Evergreen One subscriptions, and modern virtualization solutions such as Cloud Block Store (CBS) and Portworx. [23]
- Cash & balance sheet: The company ended the quarter with about $1.5 billion in cash and marketable securities and continues to repurchase shares (about $53 million in Q3). [24]
On guidance, the raised outlook implies that management sees the current AI wave and enterprise refresh cycle as durable rather than fleeting, even while warning that hyperscaler mix will alter the margin profile in fiscal 2027. [25]
Wall Street’s Latest Ratings and Price Targets
Analysts have rushed to update their models following the Q3 release and stock reaction. As of December 3, 2025:
- Consensus rating remains “Buy.” StockAnalysis aggregates 20 analysts covering PSTG, with an overall “Buy” recommendation. [26]
- Average 12‑month price target: About $90.50, implying ~29% upside from today’s price near $70. Targets range from $60 to $120. [27]
Recent moves today include:
- JP Morgan (Samik Chatterjee): Maintained Overweight, trimming target from $110 to $105. [28]
- Wedbush (Matt Bryson): Maintained Outperform/Buy, raising target from $90 to $100. [29]
- Needham (Mike Cikos): Reiterated Strong Buy with a $100 target. [30]
- UBS (David Vogt): Keeps a Sell / Strong Sell stance but lifts target from $55 to $60. [31]
- Susquehanna: Downgraded from Buy to Hold, with a $100 target, citing uncertainty about scaling hyperscaler revenues and margin structure. [32]
Other commentary:
- TD Cowen boosted its target to $100 while warning that higher operating expenses put operating margin expansion “temporarily on hold.” [33]
- TipRanks summarises coverage as “mixed but largely positive,” with several major banks (JPMorgan, Citi, Guggenheim, Wells Fargo) keeping Buy/Overweight ratings and targets clustered in the $100–$105 range. [34]
Even after today’s plunge, most analysts still expect the stock to trade higher over the next 12 months, but the spread between bullish and bearish targets has widened, reflecting genuine disagreement about long‑term profitability.
Growth and Earnings Forecasts: The Road Ahead
According to aggregated Wall Street estimates: [35]
- Revenue 2026 (FY ending Feb 2026): ~$3.69 billion, up 16.5% from ~$3.17 billion.
- Revenue 2027: ~$4.25 billion, implying another 15.3% growth.
- EPS this year:$1.99, up from $0.31 last year—massive expansion as the company scales.
- EPS next year:$2.52, implying ~26% EPS growth on top of that step‑change.
Those forecasts help explain why the forward P/E multiple (~mid‑30s) is much lower than the trailing one: analysts expect profitability to catch up rapidly to revenue, even as the company spends heavily on AI‑driven opportunities. [36]
The key debate is whether those forecasts remain realistic if hyperscaler economics shift, AI infrastructure pricing normalizes, or competition intensifies.
AI, Hyperscalers, and Strategic Partnerships
Pure Storage’s long‑term bull case is tightly bound to its role as storage infrastructure for the AI era.
NVIDIA AI Data Platform and FlashBlade
In March 2025, Pure announced that it was integrating the NVIDIA AI Data Platform reference design into its FlashBlade system, with FlashBlade certified for NVIDIA Cloud Partner and Enterprise deployments. [37]
Highlights of that collaboration:
- FlashBlade is designed as a high‑performance, distributed storage system capable of feeding GPU clusters for large‑scale training, inference, and RAG (retrieval‑augmented generation) workloads. [38]
- Pure has become an NVIDIA‑Certified high‑performance storage partner, validating its systems for demanding AI “factory” environments. [39]
Cisco + Pure: AI Factories for the Enterprise
In October 2025, Pure and Cisco unveiled a FlashStack Cisco Validated Design (CVD) as part of the Cisco Secure AI Factory with NVIDIA, bundling compute, storage, networking, and software into a production‑grade AI platform. [40]
The goal: make it easier for enterprises to move from AI pilots to full production, solving the often‑neglected data bottlenecks that prevent GPUs from being fully utilized.
Why This Matters to Investors
These partnerships:
- Embed Pure deeper into AI infrastructure ecosystems alongside NVIDIA and Cisco.
- Strengthen its pitch to enterprises and GPU cloud providers who need scalable, flash‑optimized storage.
- Help explain the company’s willingness to sacrifice near‑term margins to win long‑duration AI workloads and hyperscaler contracts. [41]
For long‑term investors, the core question is not whether AI will drive data storage demand (it will), but how much of that value accrues to Pure versus competitors—and at what margin.
Key Risks and Things to Watch
1. Margin Compression and Spending
- Management is openly prioritizing share gains and AI leadership over immediate margin maximization. [42]
- Hyperscaler deals tend to be price‑sensitive and large in scale, which can dilute margins even if they boost revenue and ARR.
If revenue growth slows or hyperscaler expansion underdelivers, the market may not tolerate elevated spending levels for long.
2. Competitive Landscape
Traditional and next‑gen storage players—including NetApp, Dell, VAST Data, Nutanix, and others—are also tailoring platforms for AI workloads and collaborating with NVIDIA. [43]
Pure’s strong technology, Evergreen subscription model, and AI‑ready architecture are advantages, but the field is getting crowded.
3. Macro and IT Spending Cycles
While Pure has been gaining share, it still depends on:
- Enterprise storage refresh cycles
- Data center expansion
- AI and cloud infrastructure budgets
Any slowdown in IT spending—or a cyclical pause in AI infra build‑outs—could pressure growth expectations.
4. Volatility
TD Cowen and others explicitly warned investors to expect higher stock volatility as Pure navigates its AI investment phase. [44]
Today’s 20%+ drawdown is a vivid reminder that even fundamentally strong companies can be whipsawed when expectations are extreme.
Is Pure Storage Stock a Buy After the December 3 Sell-Off?
Nothing here is financial advice, but it’s possible to outline how different types of investors might view PSTG after today’s reset.
For Growth‑Oriented AI Believers
The bull case:
- The business is still growing double‑digits, with expanding ARR and RPO. [45]
- Pure is deeply embedded in AI infrastructure ecosystems via NVIDIA and Cisco collaborations. [46]
- Consensus sees continued revenue and EPS growth into 2027, with EPS potentially rising from $0.31 to $2.52 over just a few years. [47]
- Many top‑tier analysts still have targets around $100–$105, well above today’s price near $70. [48]
For this camp, today’s plunge may look like a high‑volatility entry point into a leading AI storage platform with a long runway and improved risk‑reward after a one‑day derating.
For Value and Risk‑Aware Investors
The skeptical case:
- Even after a 25–26% drop, a forward P/E in the mid‑30s is not cheap, especially with net income under pressure and 2027 margin uncertainty. [49]
- At least one major bank (UBS) maintains a Sell/Strong Sell rating with a $60 target, and Susquehanna just shifted to Hold. [50]
- Hyperscaler economics are notoriously tough, and management has already signaled gross margin changes ahead. [51]
For these investors, Pure may need to prove it can grow into its valuation—and demonstrate that AI‑driven growth won’t permanently cap margins—before the stock becomes compelling.
Near-Term Catalysts
Investors watching Pure Storage over the next few weeks and months may focus on:
- Further analyst revisions to targets and ratings, as firms digest the new guidance and stock move. [52]
- Management commentary at upcoming conferences such as the UBS Global Technology and AI Conference on December 4, 2025, where Pure is scheduled to present. [53]
- Any additional color on hyperscaler deal structures, AI pipeline visibility, and fiscal 2027 margin expectations in future updates or conference call remarks. [54]
Bottom Line
Pure Storage’s December 3, 2025 sell‑off is a classic case of a high‑flying AI infrastructure name colliding with messier, real‑world margin math.
- The business remains fundamentally strong, with double‑digit top‑line growth, expanding recurring revenue, and raised full‑year guidance. [55]
- The stock, however, is recalibrating to reflect higher spending, hyperscaler dependence, and a still‑rich valuation, even after a steep one‑day decline. [56]
For investors, PSTG is now firmly in “high‑conviction thesis required” territory: the upside tied to AI and cloud data remains significant, but so do the risks around margins, competition, and execution.
Anyone considering the stock should carefully review the company’s latest filings, listen to the Q3 earnings call, and assess personal risk tolerance before making any decision.
References
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