Jim Cramer found a real AI storage play, then told you not to buy it

Backblaze posted Q1 FY2026 revenue of $38.67 million, above expectations by about 2%, with adjusted EPS of $0.04 and full-year revenue guidance raised to $161.5 million-$163.5 million. The cloud storage division grew 24% and now accounts for 57% of revenue, while AI customer count rose 76% year over year, but Cramer argued the stock is already fairly valued at about 3x sales and ~50x next-year earnings. Shares jumped about 55% after the print and are up roughly 59% year to date, though he said timing is still poor due to rising equipment costs and a declining legacy backup business.

Analysis

BLZE is behaving like a classic small-cap re-rate story where the market is paying for the AI adjacency but not yet willing to underwrite the operating leverage. The second-order issue is that higher mix into AI-facing storage can actually compress near-term gross margin if the company has to front-load capacity and procurement into a tight hardware market; that means the best revenue inflection may arrive before the best earnings inflection. In other words, fundamentals can improve while the stock still chops because the balance of power remains with vendors and macro flows, not management narrative.

The competitive lens is more important than the headline AI label. If enterprise object storage demand is really migrating away from hyperscaler-native defaults, the upside is not just BLZE share gain but also pricing discipline across the long tail of independent infrastructure vendors; however, if Amazon chooses to lean harder on price/performance or bundling, BLZE’s perceived moat can narrow quickly. AMZN is the silent reference asset here: any sign of cloud price compression or AI storage bundling at scale would pressure the whole “alternative to S3” thesis and likely hit BLZE first.

Near term, this is a flow-sensitive stock with a catalyst window measured in weeks, not years. After a sharp post-earnings move, the market is likely to fade good news unless there is another visible acceleration in large-customer ARR or a material upward guide reset; absent that, the stock can spend months digesting even if the business remains intact. The real tail risk is a double squeeze: hardware cost inflation stays elevated while legacy decline becomes more visible, forcing the market to assign a lower terminal margin than the current multiple implies.

The contrarian takeaway is that the move may be underdone on a 12- to 24-month basis but overdone on a 1- to 2-quarter basis. Investors are likely underappreciating how sticky enterprise storage workloads can be once embedded, yet overestimating how quickly that converts into sustainable FCF at this scale. This creates a setup where patience is rewarded more than conviction sizing: good long-term business, poor timing for a clean outright long.

Key Decisions for Investors

• Do not chase BLZE after the post-earnings rerating; wait for a 10-15% pullback or a failed breakout near prior highs before initiating a starter long. Risk/reward improves materially only if the stock resets while the AI/customer metrics remain intact.
• Express a relative-value long BLZE / short AMZN pair for 1-3 months only if the market starts rewarding independent AI infrastructure scarcity; the thesis is that BLZE can rerate faster on niche AI storage traction, but stop out if AMZN cloud commentary turns aggressive on pricing or bundling.
• Buy BLZE call spreads six to nine months out instead of common stock if you want upside exposure with defined risk. The best setup is a delayed re-rate on another earnings beat, but volatility is high and the stock is likely to mean-revert first.
• Use BLZE as a tactical short against a basket of profitable AI infrastructure leaders if the market rotates away from high-beta small caps; the company has real growth, but not enough margin safety to withstand multiple compression in a risk-off tape.
• Set a catalyst watch on the next two quarters: if large-customer ARR and AI customer growth stay above 50% year over year while gross margin stabilizes, upgrade to a medium-term long. If hardware costs stay elevated and backup revenue decays faster than expected, the stock likely re-prices down 20-30% from current levels.