Pure Storage Margin To Expand From NAND Pricing Weakness: Analyst

B of A Securities analyst Wamsi Mohan anticipates Pure Storage's Q1 FY26 revenue and EPS to slightly exceed consensus estimates, projecting $772 million and $0.26, respectively, driven by FlashBlade/E adoption. Despite expected product margin pressure, the analyst forecasts a 10.7% operating margin for Q1, citing strong subscription margins, and expects the company to reiterate its full-year 17% operating margin guidance; however, Mohan also foresees potential headwinds from macro uncertainty and increased competition impacting IT spending and storage demand in the latter half of 2025.

Analysis

Bank of A Securities analyst Wamsi Mohan anticipates Pure Storage (PSTG) will report Q1 FY26 revenue of $772 million and EPS of $0.26, slightly surpassing consensus estimates of $770 million and $0.25 respectively, driven by continued momentum from FlashBlade/E adoption. This performance would reflect a 12% quarter-over-quarter revenue decline, a more moderate decrease compared to the historical average Q1 seasonal decline of 16% since 2016. Despite expected negative impacts on product margins from FlashBlade/E, Mohan forecasts a Q1 operating margin of 10.7%, exceeding both Street estimates (10.6%) and company guidance (10.4%), primarily due to robust subscription margins. The analyst expects Pure Storage to reiterate its full-year operating margin guidance of 17%. However, for Q2 FY26, revenue is projected at $835 million, slightly below the Street's $839 million estimate, with recent weakness in NAND pricing potentially supporting margin expansion in Q2 and Q3, although PSTG's practice of prebuying raw NAND could partially offset this benefit. Mohan maintains a Neutral rating and a $73 price target on PSTG, noting that product growth has yet to re-accelerate and hyperscaler deals remain future catalysts. The outlook is tempered by an anticipated enterprise IT spending pause in the second and third quarters of 2025 due to macro uncertainty, which is expected to broadly impact IT hardware, particularly deferrable storage purchases, and increased competitive pressure from Dell Technologies' new products and aggressive pricing potentially limiting industry upside. Reflecting a mixed long-term view, EPS estimates for FY27 were marginally increased to $2.07, while FY28 estimates were slightly reduced to $2.46.

Key Decisions for Investors

• Investors should closely monitor Pure Storage's upcoming Q1 earnings for confirmation of FlashBlade/E adoption strength and the resilience of subscription margins, which are key to achieving the forecasted 10.7% operating margin and slightly beating consensus.
• Consider the analyst's Neutral rating and $73 price target in the context of potential medium-term headwinds, such as a forecasted enterprise IT spending pause and intensifying competition, despite a positive near-term outlook on margins and Q1 estimates.
• Pay attention to management's commentary on the reiterated full-year 17% operating margin guidance, the net impact of NAND pricing dynamics on future margins, progress on hyperscaler deals, and the outlook for the broader IT spending environment, as these are significant future catalysts or risk factors.