Zacks Touts Pure Storage Hyperscaler Gains, But DeepValue Warns of FY27 Margin Cliff

What happened

A recent Zacks article highlights Pure Storage's hyperscaler strategy as boosting product margins and operating profit guidance, framing it as a durable growth engine. However, the latest DeepValue master report reveals that the stock trades at rich valuations (~158x P/E, ~75x EV/EBITDA) with management explicitly warning of a FY27 gross-margin reset and increased opex for hyperscaler ramps. The report cautions that current high margins are temporarily inflated by license-heavy hyperscaler revenue, while upcoming hardware-intensive models could compress profitability. With a bear case implying a ~$45 stock price if gross margins fall to the mid-60s, the risk-reward appears unfavorable at current levels. Investors should view positive headlines skeptically until FY27 guidance clarifies hyperscaler economics and margin sustainability.

Implication

The stock's elevated multiples offer little margin for error, making any compression in gross or operating margins a significant downside catalyst. Management's planned opex increases for hyperscaler deployments could further strain profitability even if revenue growth persists. Key near-term catalysts, such as Q4 FY26 earnings with FY27 guidance, will be critical in repricing the stock based on actual hyperscaler economics rather than optimistic narratives. Until then, the base case intrinsic value of $65 suggests limited upside, while the bear case implies potential for a ~30% decline if margins reset sharply. Maintaining a cautious stance or trimming positions ahead of guidance is prudent to mitigate valuation and execution risks.

Thesis delta

The new article reinforces the growth narrative but does not alter the core thesis from the DeepValue report, which emphasizes high valuation and impending FY27 margin resets as key risks. No shift in investment stance is warranted until management provides concrete guidance on hyperscaler profitability and operating leverage, as the stock remains vulnerable to downside from margin compression.